Supervision of aggregation platforms: When and to whom is it beneficial?

In recent years, a new business model, known as the aggregation platform (AP), has emerged in the ride-sharing industry. However, frequent responsibility violations by the accessed platforms have led to customer concerns, hampering their development. This study uses a stylized model to explore the conditions under which an AP should supervise third-party platforms by considering the access decisions of third-party platforms. Our results show that the access strategy of the ride-sharing platform (RSP) is determined by the trade-off between three effects: a consumer awareness effect, which leads to an increase in consumer demand when accessing; a consumer switching effect and a driver cost effect, which lead to opportunities for the RSP to obtain its competitors’ markets when not accessing. To determine its supervision strategy, the AP should balance the increased demand caused by eliminating responsibility violations with the driver cost effect. We also show that the RSP’s access strategy significantly influences the AP’s optimal supervision strategy if the network externality is weak. Moreover, we reveal that AP supervision enlarges the entire market but intensifies competition among third-party platforms. A weak network externality can relax competition, allowing supervision to simultaneously benefit both the AP and RSPs if the network externality coefficient is low, resulting in a win-win situation.