IDEAS home Printed from https://ideas.repec.org/a/eee/jomega/v102y2021ics0305048320306630.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0305048320306630
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.omega.2020.102309?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gérard P. Cachon & Kaitlin M. Daniels & Ruben Lobel, 2017. "The Role of Surge Pricing on a Service Platform with Self-Scheduling Capacity," Manufacturing & Service Operations Management, INFORMS, vol. 19(3), pages 368-384, July.
    2. Bimpikis, Kostas & Candogan, Ozan & Saban, Daniela, 2016. "Spatial Pricing in Ride-Sharing Networks," Research Papers 3482, Stanford University, Graduate School of Business.
    3. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    4. Armony, Mor & Haviv, Moshe, 2003. "Price and delay competition between two service providers," European Journal of Operational Research, Elsevier, vol. 147(1), pages 32-50, May.
    5. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    6. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
    7. Kangzhou Wang & Shulin Lan & Zhibin Jiang, 2016. "Impact of customer impatience on a production service system," International Journal of Production Research, Taylor & Francis Journals, vol. 54(9), pages 2731-2749, May.
    8. Gad Allon & Awi Federgruen, 2007. "Competition in Service Industries," Operations Research, INFORMS, vol. 55(1), pages 37-55, February.
    9. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    10. Wang, Haiyan & Olsen, Tava Lennon & Liu, Guiqing, 2018. "Service capacity competition with peak arrivals and delay sensitive customers," Omega, Elsevier, vol. 77(C), pages 80-95.
    11. Li Li & Li Jiang & Liming Liu, 2012. "Service and Price Competition When Customers Are Naive," Production and Operations Management, Production and Operations Management Society, vol. 21(4), pages 747-760, July.
    12. Terry A. Taylor, 2018. "On-Demand Service Platforms," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 704-720, October.
    13. Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 483-512.
    14. Jinting Wang & Xuelu Zhang, 2017. "Optimal pricing in a service-inventory system with delay-sensitive customers and lost sales," International Journal of Production Research, Taylor & Francis Journals, vol. 55(22), pages 6883-6902, November.
    15. Maxim Afanasyev & Haim Mendelson, 2010. "Service Provider Competition: Delay Cost Structure, Segmentation, and Cost Advantage," Manufacturing & Service Operations Management, INFORMS, vol. 12(2), pages 213-235, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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).
    2. 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).
    3. 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.
    4. Hu, Shu & Tang, Yanli, 2024. "Impact of product sharing and heterogeneous consumers on manufacturers offering trade-in programs," Omega, Elsevier, vol. 122(C).
    5. 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).
    6. 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).
    7. Nie, Fapeng & Li, Xiang & Zhou, Chang, 2024. "Impact of privacy regulation involving information collection on the ride-hailing market," Omega, Elsevier, vol. 126(C).
    8. Zhou, Xiaoyang & Liu, He & Li, Jialu & Zhang, Kai & Lev, Benjamin, 2023. "Channel strategies when digital platforms emerge: A systematic literature review," Omega, Elsevier, vol. 120(C).
    9. 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).
    10. Li, Xiaonan & Li, Xiangyong & Shi, Junxin, 2024. "Capacity sharing for ride-sourcing platforms under competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 182(C).
    11. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gu, Wei & Heese, H. Sebastian & Kemahlıoğlu-Ziya, Eda & Ziya, Serhan, 2024. "Pricing for services with cross-segment externalities, capacity constraints, and competition," European Journal of Operational Research, Elsevier, vol. 313(2), pages 801-813.
    2. Jiaru Bai & Kut C. So & Christopher S. Tang & Xiqun (Michael) Chen & Hai Wang, 2019. "Coordinating Supply and Demand on an On-Demand Service Platform with Impatient Customers," Manufacturing & Service Operations Management, INFORMS, vol. 21(3), pages 556-570, July.
    3. Zhen Lian & Garrett van Ryzin, 2021. "Optimal Growth in Two-Sided Markets," Management Science, INFORMS, vol. 67(11), pages 6862-6879, November.
    4. Filistrucchi, L. & Antonielli, M., 2012. "Collusion and the Political Differentiation of Newspapers," Other publications TiSEM 3ec21c1b-a4d8-4a31-a5fc-8, Tilburg University, School of Economics and Management.
    5. Filistrucchi, L. & Gerardin, D. & van Damme, E.E.C. & Keunen, S. & Klein, T.J. & Michielsen, T.O. & Wileur, J., 2010. "Mergers in Two-Sided Markets - A Report to the NMa," Other publications TiSEM f901d1fe-8878-444e-a685-8, Tilburg University, School of Economics and Management.
    6. Filistrucchi, L. & Geradin, D.A.A.G. & van Damme, E.E.C., 2012. "Identifying Two-Sided Markets," Other publications TiSEM d69d2808-d3eb-46ea-a6ac-c, Tilburg University, School of Economics and Management.
    7. Carrillo, Juan D. & Tan, Guofu, 2021. "Platform competition with complementary products," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    8. Charles Angelucci & Julia Cagé & Michael Sinkinson, 2024. "Media Competition and News Diets," American Economic Journal: Microeconomics, American Economic Association, vol. 16(2), pages 62-102, May.
    9. Charles Angelucci & Julia Cagé, 2019. "Newspapers in Times of Low Advertising Revenues," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 319-364, August.
    10. Jullien, Bruno & Pavan, Alessandro & Rysman, Marc, 2021. "Two-sided Markets, Pricing, and Network Effects," TSE Working Papers 21-1238, Toulouse School of Economics (TSE).
    11. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    12. Simon P. Anderson & Bruno Jullien, 2015. "The advertising-financed business model in two-sided media markets," Post-Print hal-02866192, HAL.
    13. Kazakova, E. & Sandomirskaia, M. & Suvorov, A. & Khazhgerieva, A. & Shavshin, R., 2023. "Platforms, online labor markets, and crowdsourcing. Part 1. Traditional online labor market," Journal of the New Economic Association, New Economic Association, vol. 60(3), pages 120-148.
    14. Sun, Luoyi & Teunter, Ruud H. & Babai, M. Zied & Hua, Guowei, 2019. "Optimal pricing for ride-sourcing platforms," European Journal of Operational Research, Elsevier, vol. 278(3), pages 783-795.
    15. Subhasish M. Chowdhury & Stephen Martin, 2017. "Exclusivity and exclusion on platform Markets," Journal of Economics, Springer, vol. 120(2), pages 95-118, March.
    16. Elena Argentesi & Lapo Filistrucchi, 2007. "Estimating market power in a two-sided market: The case of newspapers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1247-1266.
    17. Charles Angelucci & Julia Cage & Michael Sinkinson, 2020. "Media Competition and News Diets," SciencePo Working papers Main hal-03393063, HAL.
    18. Filistrucchi, L. & Antonielli, M., 2012. "Collusion and the Political Differentiation of Newspapers," Other publications TiSEM 41fe3816-41ca-4f3f-8aef-4, Tilburg University, School of Economics and Management.
    19. Yang, Hai & Shao, Chaoyi & Wang, Hai & Ye, Jieping, 2020. "Integrated reward scheme and surge pricing in a ridesourcing market," Transportation Research Part B: Methodological, Elsevier, vol. 134(C), pages 126-142.
    20. Wang, Jin, 2021. "Do birds of a feather flock together? Platform’s quality screening and end-users’ choices theory and empirical study of online trading platforms," International Journal of Industrial Organization, Elsevier, vol. 75(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:102:y:2021:i:c:s0305048320306630. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.