Integrated reward scheme and surge pricing in a ride-sourcing market

• Main Authors: YANG, Hai, SHAO, Chaoyi, Hai WANG, YE, Jieping
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Driver Income; Platform Revenue; Reward Scheme; Ride-sourcing; Surge Pricing; User Utility; Computer Sciences; Operations Research, Systems Engineering and Industrial Engineering; Transportation
• Online Access: https://ink.library.smu.edu.sg/sis_research/4370; https://ink.library.smu.edu.sg/context/sis_research/article/5373/viewcontent/Integrated_reward_surge_pricing_2018_afv.pdf
• Institution: Singapore Management University

Surge pricing is commonly used in on-demand ride-sourcing platforms (e.g., Uber, Lyft and Didi) to dynamically balance demand and supply. However, since the price for ride service cannot be unlimited, there is usually a reasonable or legitimate range of prices in practice. Such a constrained surge pricing strategy fails to balance demand and supply in certain cases, e.g., even adopting the maximum allowed price cannot reduce the demand to an affordable level during peak hours. In addition, the practice of surge pricing is controversial and has stimulated long debate regarding its pros and cons. To address the limitation of current surge pricing practice, we propose a novel reward scheme integrated with surge pricing: users can pay an additional amount on top of the regular surge price to a reward account during peak hours, and then use the balance in the reward account to compensate for their trips during off-peak hours. We explore the reward scheme from three perspectives: user utility, driver income, and platform revenue and profit. We find that, in some situations, all the three stakeholders, i.e., users, drivers, and the platform, will be better off under the reward scheme integrated with surge pricing.