Platform integration in ride-sourcing markets with heterogeneous passengers

Abstract

This paper explores the impacts of a novel business model termed platform integration, which enables passengers to simultaneously request on-demand rides from multiple ride-sourcing platforms via a third-party integrator. In particular, we employ an equilibrium model where passenger demand and driver supply are endogenously dependent on the prices and wages that emerge from the competitive interaction between two platforms, with and without an integrator. A Hotelling model is adopted to characterize passengers’ heterogeneity in service preference for different platforms. We employ the concepts of a Nash equilibrium and a shared monopoly to analyze equilibrium outcomes that can arise in various settings of demand and supply characteristics with and without platform integration. We find that how the platform should adjust its price and wage at Nash equilibrium as potential demand increases is affected by the nature of supply. We also find that the profit at Nash equilibrium can increase or decrease in supply capacity depending on the competitive situation of the platforms. We build on these equilibrium results to analyze how platform integration affects the platform’s decision-making of price and wage, and market performance. We find that platform integration can increase platform profit but reduce driver income, and may hurt passengers who have a strong preference for one certain platform, especially in the case of a less heterogeneous supply.