Managing On-Demand Ridesharing Operations : Optimal Pricing Decisions for a Ridesharing Platform

Zhenning DONG, Mingming LENG*

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)

Abstract

We investigate an on-demand ridesharing system consisting of a ridesharing platform, multiple drivers, and multiple passengers. We begin by analyzing a choice problem for a passenger who chooses either a ridesharing or taxi service and also studying a choice problem for a driver who decides on whether or not to serve. Then, we obtain the ridesharing platform’s optimal service price charged to passengers and its optimal wage paid to drivers. We perform sensitivity analysis to draw a number of managerial implications. An increase in the number of potential passengers (drivers) usually results in an increase (a decrease) in both the price and wage. We also find that the platform is better off when both the number of passengers and the number of drivers are higher, and an increase in the passengers’ mental costs for the taxi service can help increase the platform’s profit. Moreover, the dynamic pricing strategy can not only improve the platform’s profit but also generate larger surpluses to passengers and drivers.
Original languageEnglish
Article number107958
JournalInternational Journal of Production Economics
Early online date16 Oct 2020
DOIs
Publication statusE-pub ahead of print - 16 Oct 2020

Bibliographical note

The authors are grateful to the Editor (Professor T.C.E. Cheng) and three anonymous reviewers for their insightful comments that helped improve this paper.

The first author (Zhenning Dong) was supported by the Guangdong Natural Science Foundation under Grant No. 2018A030313444. The second author (Mingming Leng) was supported by the Faculty Research Grant (FRG) of Lingnan University under Research Project No. DB20A1, and was also supported by Hong Kong Institute of Business Studies of the Faculty of Business at Lingnan University under Research Program Grant No. HCRG/189/006.

Keywords

  • optimization
  • decision analysis
  • ridesharing operations

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