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Should ride-sharing platforms cooperate with car-rental companies? Implications for consumer surplus and driver surplus

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  • Lin, Xiaogang
  • Sun, Cuiying
  • Cao, Bin
  • Zhou, Yong-Wu
  • Chen, Chuanying

Abstract

The booming on-demand ride-sharing economy induces drivers who do or do not own cars to provide services on ride-sharing platforms. To meet growing demand, in practice the platforms have cooperated with car-rental companies that rent cars to without-car drivers to improve their supplies. However, this might harm the platforms, consumers, and drivers, since such a second capacity source may increase customers’ waiting time and reduce drivers’ utilization. In this paper, we study the impact of without-car drivers in a car-rental company on a ride-sharing platform, consumer surplus, and driver surplus. The platform must decide whether to cooperate with the car-rental company, which entails a per-service price charged to customers and a per-service wage paid to (with-car and without-car) driver. In turn, the car-rental company charges without-car drivers who would like to provide services on the platform a price, and pays a commission rate to the platform. We analyze a stylized model in which customers decide whether to use the platform based on price and expected waiting time, and drivers base decisions about whether to work for the platform on wage and the probability of getting jobs. Driven by these two features, we find that the platform would prefer to cooperate with the car-rental company, and the optimal price and wage (profit) of the platform are not necessarily monotonic (increases) in the potential number of without-car drivers or the commission paid by the company. We also find that when the commission rate is high or the fixed payout ratio is low, cooperation can yield a win–win–win outcome for the platform, customers, and drivers. This provides a plausible explanation of why most ride-sharing platforms would cooperate with car-rental companies in practice. In addition, we find that such a win–win–win outcome can easily be achieved for a large customer size or delay cost but a small (with-car and without-car) driver size or service rate.

Suggested Citation

  • Lin, Xiaogang & Sun, Cuiying & Cao, Bin & Zhou, Yong-Wu & Chen, Chuanying, 2021. "Should ride-sharing platforms cooperate with car-rental companies? Implications for consumer surplus and driver surplus," Omega, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:jomega:v:102:y:2021:i:c:s0305048320306630
    DOI: 10.1016/j.omega.2020.102309
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    5. Jun Tu & Juan Du & Min Huang, 2023. "Competition between Green and Non-Green Travel Companies: The Role of Governmental Subsidies in Green Travel," Sustainability, MDPI, vol. 15(9), pages 1-33, May.
    6. Zhong, Yuanguang & Lan, Yibo & Chen, Zhi & Yang, Jiazi, 2023. "On-demand ride-hailing platforms with heterogeneous quality-sensitive customers: Dedicated system or pooling system?," Transportation Research Part B: Methodological, Elsevier, vol. 173(C), pages 247-266.
    7. Du, Zhong & Fan, Zhi-Ping & Chen, Zhongwei, 2023. "Implications of on-time delivery service with compensation for an online food delivery platform and a restaurant," International Journal of Production Economics, Elsevier, vol. 262(C).
    8. Cai, Zeen & Mo, Dong & Geng, Maosi & Tang, Wei & Chen, Xiqun Michael, 2023. "Integrating ride-sourcing with electric vehicle charging under mixed fleets and differentiated services," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 169(C).
    9. Yan, Xiaoyu & Liu, Weihua & Tang, Ou & Hou, Jiahe, 2024. "When will an overconfident entrant in the two-sided market do more good than harm?," International Journal of Production Economics, Elsevier, vol. 267(C).
    10. Wang, Yaxian & Zhao, Zhenli & Baležentis, Tomas, 2023. "Benefit distribution in shared private charging pile projects based on modified Shapley value," Energy, Elsevier, vol. 263(PB).
    11. Matthias Soppert & Beatriz Brito Oliveira & Ralph Angeles & Claudius Steinhardt, 2024. "On the benefit of combining car rental and car sharing," Journal of Business Economics, Springer, vol. 94(9), pages 1261-1298, November.
    12. Zhao, Meng & Li, Bin & Ren, Jiali & Hao, Zhihua, 2023. "Competition equilibrium of ride-sourcing platforms and optimal government subsidies considering customers’ green preference under peak carbon dioxide emissions," International Journal of Production Economics, Elsevier, vol. 255(C).

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