NDLI: Pricing in Ride-Sharing Platforms: A Queueing-Theoretic Approach

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Pricing in Ride-Sharing Platforms: A Queueing-Theoretic Approach

Content Provider	ACM Digital Library
Author	Banerjee, Siddhartha Johari, Ramesh Riquelme, Carlos
Abstract	We study optimal pricing strategies for ride-sharing platforms, using a queueing-theoretic economic model. Analysis of pricing in such settings is complex: On one hand these platforms are two-sided - this requires economic models that capture the incentives of both drivers and passengers. On the other hand, these platforms support very high temporal-resolution for data collection and pricing - this requires stochastic models that capture the dynamics of drivers and passengers in the system. We focus our attention on the value of dynamic pricing: where prices can react to instantaneous imbalances between available supply and incoming demand. We find two main results: We first show that profit under any dynamic pricing strategy cannot exceed profit under the optimal static pricing policy (i.e., one which is agnostic of stochastic fluctuations in the system load). This result belies the prevalence of dynamic pricing in practice. Our second result explains the apparent paradox: we show that dynamic pricing is much more robust to fluctuations in system parameters compared to static pricing. Moreover, these results hold even if the monopolist maximizes welfare or throughput. Thus dynamic pricing does not necessarily yield higher performance than static pricing - however, it lets platforms realize the benefits of optimal static pricing, even with imperfect knowledge of system parameters.
Starting Page	639
Ending Page	639
Page Count	1
File Format	PDF
ISBN	9781450334105
DOI	10.1145/2764468.2764527
Language	English
Publisher	Association for Computing Machinery (ACM)
Publisher Date	2015-06-15
Publisher Place	New York
Access Restriction	Subscribed
Subject Keyword	Dynamic pricing Two-sided platforms Queueing networks Ride-sharing
Content Type	Text
Resource Type	Article

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