Uniform or personalized pricing? Strategy choices for competing on-demand service platforms with network effects

With the rapid development of on-demand service platforms, such as ride-hailing systems, pricing has become a crucial operational tool for balancing demand and supply in real-time service markets. Technological advances enable platforms to implement personalized pricing; however, in on-demand services, pricing decisions on the demand side directly affect service providers’ wages, thereby influencing service capacity and system efficiency. In this paper, we investigate pricing strategy choices for two competing on-demand transportation platforms. Based on whether a platform opts for uniform pricing (U) or personalized pricing (P), we consider four strategy combinations: both platforms adopt uniform pricing (UU), both platforms adopt personalized pricing (PP), or only one platform introduces personalized services (PU/UP). Our analysis reveals that platform equilibrium strategies are closely related to consumer switching costs and cross-side network effects. If the consumer switching costs and the cross-side network effects are small, it is favorable for both platforms to adopt uniform pricing, resulting in UU equilibrium. If the consumer switching costs and the cross-side network effects for service providers are small while the cross-side network effects for consumers are moderate, an asymmetric equilibrium PU/UP arises. Otherwise, PP equilibrium occurs since both platforms prefer personalized pricing. In this situation, a prisoner’s dilemma may emerge, as both platforms can be worse off than under UU. Moreover, this PP equilibrium can lead to the highest consumer surplus and social welfare among all strategy combinations, which suggests that the government may need to reconsider the regulation of price discrimination strategies for on-demand service platforms.