Carpool Services for Ride-sharing Platforms: Price and Welfare Implications

Abstract

There has been rapid growth in on-demand ride-hailing platforms that serve as an intermediary to match individual service providers (drivers) with consumer demand (riders). Several major players of this market have introduced carpool services that allow passengers heading towards the same direction to share a ride at a discounted fare. In this paper, we develop an analytical model to study the pricing issues of ride-sharing platforms in the presence of carpool services, and their economical and social implications. We show that the carpool service should be provided when its quality and/or the pooling efficiency is high. Adopting carpool services enables the platform to achieve a larger market coverage and allows the customers to enjoy more affordable rides without any sacrifice in service quality. Our analysis reveals that the provision of carpool services benefits the platform and the riders in general, but may hurt the drivers. Our extensive numerical studies suggest that the carpool service and surge pricing, which are two operational levers to match supply with demand, are strategic complements when the demand-supply imbalance is severe, and they become strategic substitutes with balanced demand and supply.