Joint re-dispatching and pricing on a business-to-consumer ride-hailing platform

Abstract

On-demand B2C ride-hailing platforms have enhanced service efficiency through centralized order dispatching and full-time driver management while diversifying services to meet passengers’ varying needs for service quality. This paper is one of the first that considers a B2C ride-hailing platform that coordinates ordinary and limousine services, integrating re-dispatching and pricing strategies to optimize short-term revenue and strategically determining its fleet size and initial vehicle allocation to enhance long-term system welfare. We establish a two-period framework to capture the decision-making processes of various stakeholders, considering passengers’ heterogeneous preferences for the two services and the impact of re-dispatching limousine vehicles. For the platform’s short-term operational strategy, we identify a critical threshold for the initial allocation proportion of ordinary vehicles. Below this critical threshold, and in markets smaller than a specific size decreasing with the initial ordinary vehicle proportion, a joint re-dispatching and pricing strategy should be adopted. Otherwise, a single pricing strategy suffices. All passengers can be served in smaller markets, while only passengers with stronger preferences for the ordinary (limousine) service place orders in larger markets. The platform can enhance long-term system welfare by strategically managing fleet size and optimizing the initial allocation of vehicles. Larger markets or greater service quality differences promote the platform to choose a larger fleet and fewer initial ordinary vehicles. In contrast, a larger difference in operating costs between limousine and ordinary vehicles has the opposite effect.