On the Supply of Autonomous Vehicles in Open Platforms

54 Pages Posted: 9 Aug 2022 Last revised: 15 Nov 2022

See all articles by Daniel Freund

Daniel Freund

MIT Sloan School of Management

Ilan Lobel

New York University (NYU)

Jiayu Zhao

Operations Research Center, MIT

Date Written: August 1, 2022

Abstract

The likely arrival of autonomous vehicle (AV) technology in the near future has the potential to fundamentally change the transportation landscape. Due to the high cost of AV hardware, the most likely path to widespread use of AVs is via open platforms that can sustain high-utilization, outsource the high capital burden, and complement the network with human drivers joining as individual contractors (ICs). In this paper, we study a supply chain game between a platform, an outside AV supplier, and ICs. We show that such a setting is subject to a risk of AV underutilization because of the need to maintain the ICs' utilization sufficiently high to ensure ICs remain engaged. We show that in a decentralized supply chain, this can have a very significant negative effect on the supply chain efficiency, with an unbounded profit loss. We then study potential contracting solutions and argue that if demand scenarios are contractible, usage contracts can align the supply chain. If demand scenarios are not contractible, prioritization contracts can still guarantee that at least half of the optimal supply chain profit is attained.

Keywords: Supply Chain Contracting, Ride-hailing, Ridesharing, Autonomous Vehicles, Gig Economy, Sharing Economy

Suggested Citation

Freund, Daniel and Lobel, Ilan and Zhao, Jiayu, On the Supply of Autonomous Vehicles in Open Platforms (August 1, 2022). Available at SSRN: https://ssrn.com/abstract=4178508 or http://dx.doi.org/10.2139/ssrn.4178508

Daniel Freund (Contact Author)

MIT Sloan School of Management ( email )

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Ilan Lobel

New York University (NYU) ( email )

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Jiayu Zhao

Operations Research Center, MIT ( email )

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3133354077 (Phone)

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