Ride Solo or Pool: Designing Price-Service Menus for a Ride-Sharing Platform

47 Pages Posted: 28 Jul 2017 Last revised: 20 May 2019

See all articles by Jagan Jacob

Jagan Jacob

University of Rochester - Simon Business School

Ricky Roet-Green

University of Rochester - Simon Business School

Date Written: May 25, 2018

Abstract

A ride-sharing platform (RSP), such as Uber or Lyft, can sometimes offer passengers an option to share (pool) the ride with fellow passengers. On the one hand, a passenger who pools benefits from paying a lower fare and the RSP benefits from increasing occupancy per car, thereby serving more passengers. On the other hand, a passenger who pools takes more time, on average, to reach her destination and may have to share the ride with a stranger, and the RSP gets a lower profit margin per passenger than from solo rides. We develop a queueing model to find the RSP's optimal revenue at equilibrium when passengers are strategic, and drivers are independent agents, and design the RSP's revenue-maximizing price-service menu. We find that offering both solo and pooled rides is optimal when the distribution of passenger-type is not skewed, and congestion is not high. Counter intuitively, when congestion is high, the RSP benefits from offering only one ride choice, and simulation-based results extend these findings when more than one route exists. Revenue per driver can be non-monotonic with respect to the number of cars, even though total revenue is monotonic. Numerical analysis provides important insights when the number of drivers is endogenous. For instance, equilibrium revenue per driver can decrease when the passenger arrival rate increases. We find that when the driver supply side thickens, revenue per driver decreases. The compensation drivers receive (as a fraction of total revenue generated) increases with their reservation price and decreases with the arrival rate of passengers. When demand is low, a higher wage-payout fraction can increase RSP's equilibrium revenue.

Keywords: Pooling, Ride-sharing, Price-Discrimination, Sharing, Pricing, Queueing Theory

Suggested Citation

Jacob, Jagan and Roet-Green, Ricky, Ride Solo or Pool: Designing Price-Service Menus for a Ride-Sharing Platform (May 25, 2018). Simon Business School Working Paper No. 3008136. Available at SSRN: https://ssrn.com/abstract=3008136 or http://dx.doi.org/10.2139/ssrn.3008136

Jagan Jacob

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Ricky Roet-Green (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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