Ride solo or pool: Designing price-service menus for a ride-sharing platform

A ride-sharing platform (RSP), such as Uber or Lyft, can sometimes offer passengers an option to share (pool) the ride with fellow passengers. On the one hand, a passenger who pools benefits from paying a lower fare and the RSP benefits from increasing occupancy per car, thereby serving more passengers. On the other hand, a passenger who pools takes more time, on average, to reach her destination and may have to share the ride with a stranger, and the RSP gets a lower profit margin per passenger than from solo rides. We develop a queueing model to find the RSP's optimal revenue in equilibrium when passengers are strategic and drivers are independent agents, and design the RSP's revenue-maximizing price-service menu. We find that offering both solo and pooled rides is optimal when the distribution of passenger-type is not skewed and congestion is not high. Counter intuitively, when congestion is high, the RSP benefits from offering only one ride choice. Simulation-based results extend these findings when more than one route exists. We provide a numerical example based on real-life data. When the number of drivers is endogenous, equilibrium revenue per driver can decrease when the passenger arrival rate increases. (c) 2021 Elsevier B.V. All rights reserved.

Automated summary

The study develops a queuing model to find the optimal revenue for ride-sharing platforms when passengers are strategic and drivers are independent agents. It shows that offering both solo and pooled rides is optimal when passenger distribution is not skewed and congestion is not high, with counterintuitive benefits from offering only one ride choice in high congestion scenarios. Simulation-based results further extend these findings in the presence of multiple routes.