Integrated Reward Scheme and Surge Pricing in a Ridesourcing Market

27 Pages Posted: 27 Jun 2018 Last revised: 9 Feb 2020

See all articles by Hai Yang

Hai Yang

Hong Kong University of Science & Technology (HKUST) - Department of Civil Engineering

Chaoyi Shao

Hong Kong University of Science & Technology (HKUST)

Hai Wang

Carnegie Mellon University - Heinz College of Information Systems and Public Policy; Singapore Management University - School of Information Systems

Jieping Ye

DiDi Labs - DiDi Research Institute

Date Written: June 18, 2018

Abstract

Surge pricing is commonly used in on-demand ridesourcing platforms to dynamically balance demand and supply, although it is controversial and has long stimulated debate regarding its pros and cons. In practice, there is usually a reasonable or legitimate range of prices. However, such a constrained surge-pricing strategy may fail to balance demand and supply in certain cases—e.g., even adopting the highest allowed price cannot reduce peak-period demand to a level at which the market clears without some form of non-price rationing. To address this limitation, we propose a novel reward scheme integrated with surge pricing: Passengers pay an additional amount to a reward account on top of the regular surge price during peak hours, then use the balance in their reward account to subsidize trips during off-peak hours. We propose models to describe the number of travel requests and the number of active drivers on the platform, and characterize the market equilibrium under several assumptions. We compare scenarios with and without the reward scheme from three perspectives: passenger utility, driver income, and platform revenue and profit. We find that in some situations, all three stakeholders—i.e., passengers, drivers, and the platform—will be better off under the reward scheme integrated with surge pricing.

Keywords: Ridesourcing, Surge Pricing, Reward Scheme, User Utility, Driver Income, Platform Revenue

Suggested Citation

Yang, Hai and Shao, Chaoyi and Wang, Hai and Ye, Jieping, Integrated Reward Scheme and Surge Pricing in a Ridesourcing Market (June 18, 2018). Available at SSRN: https://ssrn.com/abstract=3198081 or http://dx.doi.org/10.2139/ssrn.3198081

Hai Yang

Hong Kong University of Science & Technology (HKUST) - Department of Civil Engineering ( email )

Hong Kong

Chaoyi Shao

Hong Kong University of Science & Technology (HKUST) ( email )

Clear Water Bay
Hong Kong

Hai Wang (Contact Author)

Carnegie Mellon University - Heinz College of Information Systems and Public Policy ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Singapore Management University - School of Information Systems ( email )

School of Information Systems
80 Stamford Road
Singapore 178902, 178899
Singapore

Jieping Ye

DiDi Labs - DiDi Research Institute ( email )

Beijing, Haidian District 100085
China

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