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

Zhenning DONG; Mingming LENG

doi:10.1016/j.ijpe.2020.107958

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

Zhenning DONG, Mingming LENG^*

^*Corresponding author for this work

FACULTY OF BUSINESS

Research output: Journal Publications › Journal Article (refereed) › peer-review

12 Citations (Scopus)

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 language	English
Article number	107958
Journal	International Journal of Production Economics
Volume	232
Early online date	16 Oct 2020
DOIs	https://doi.org/10.1016/j.ijpe.2020.107958
Publication status	Published - Feb 2021

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

Decision analysis
Optimization
Ridesharing operations

Access to Document

10.1016/j.ijpe.2020.107958

Cite this

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title = "Managing On-Demand Ridesharing Operations : Optimal Pricing Decisions for a Ridesharing Platform",

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{\textquoteright}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{\textquoteright} mental costs for the taxi service can help increase the platform{\textquoteright}s profit. Moreover, the dynamic pricing strategy can not only improve the platform{\textquoteright}s profit but also generate larger surpluses to passengers and drivers.",

keywords = "Decision analysis, Optimization, Ridesharing operations",

author = "Zhenning DONG and Mingming LENG",

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.",

year = "2021",

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doi = "10.1016/j.ijpe.2020.107958",

language = "English",

volume = "232",

journal = "International Journal of Production Economics",

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AU - LENG, Mingming

N1 - 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.

PY - 2021/2

Y1 - 2021/2

N2 - 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.

AB - 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.

KW - Decision analysis

KW - Optimization

KW - Ridesharing operations

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DO - 10.1016/j.ijpe.2020.107958

M3 - Journal Article (refereed)

SN - 0925-5273

VL - 232

JO - International Journal of Production Economics

JF - International Journal of Production Economics

M1 - 107958

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

Abstract

Bibliographical note

Keywords

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

Abstract

Bibliographical note

Keywords

Access to Document

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