Two-Sided Competition Between On-Demand Service Platforms

Abstract

On-demand service platforms compete for both workers and customers, forming a two-sided competition. In this paper, we study the game between two platforms implied by such a two-sided competition and examine how the characteristics of the embedded workers-customers subgame affect outcomes in equilibrium. Specifically, we consider two subgame settings: (i) workers and customers move sequentially and (ii) workers and customers move simultaneously. We find that these two settings yield different subgame outcomes. In the first setting, given any platform strategy profile, there is no subgame equilibrium such that both platforms have a positive market share. In the simultaneous-move setting, such subgame equilibria can exist, though not unique. In the presence of multiple equilibria, we show that under some refinement rules both settings (the sequential and simultaneous subgames) yield the same unique pure-strategy equilibrium. We discuss how these results shed light on the competitive dynamics of on-demand service platforms in practice.