Coopetition and Profit Sharing for Ride-Sharing Platforms
38 Pages Posted: 30 Aug 2017 Last revised: 21 Mar 2018
Date Written: August 28, 2017
The introduction of on-demand ride-hailing platforms totally changed the way people commute. Recently, some of these platforms engaged in a profit sharing contract with one of their competitors by introducing a new joint service. For example, on June 6, 2017, an NYC-based online ride-sharing platform, Via, officially announced a partnership with the taxi-hailing platform Curb. This partnership allows riders to order a taxi and share some portion of the trip with other riders by using Via's efficient matching algorithm. These two platforms are both competing and cooperating with each other, so this form of partnership is often referred to as coopetition. This paper is motivated by such partnerships in the ride-sharing industry. We model the price competition between ride-hailing platforms using the Multinomial Logit choice model and analyze the impact of introducing the new joint service. First, we identify conditions under which the coopetition is beneficial for both platforms. Interestingly, we show that when both platforms are not over-congested, a well-designed profit sharing contract will benefit both platforms. This result admits a similar win-win outcome as in the supply chain contracts literature, even though the settings are very different. In addition, we show that one can design a profit sharing contract that also benefits riders and drivers. Consequently, such a coopetition partnership may benefit every single party (riders, drivers, and both platforms) when using a properly designed profit sharing contract.
Keywords: Ride-sharing, coopetition, profit sharing contracts, choice models
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