Capacity sharing for ride-sourcing platforms under competition

Abstract

The practice of capacity sharing among ride-sourcing platforms has significantly gained popularity, yet its full impact remains unexplored. In this paper, we investigate how capacity constraints and sharing affect platform profitability, customer surplus and labor welfare. We propose a Cournot competition model in which two competing platforms simultaneously decide on matching quantities, setting prices and wages to balance supply and demand. Three different capacity scenarios are considered in our analysis: unconstrained, constrained without sharing, and constrained with sharing. By comparing the results of the first two scenarios, we find that capacity constraint would alleviate the price competition, benefiting the platform with sufficient capacity while hurting others facing labor shortage. Moreover, constrained capacity leads to lower customer surplus and labor welfare. Through a comparative analysis of the results obtained from the last two scenarios, we find that under two types of capacity sharing contracts, price competition may get more intense. Additionally, drivers, passengers and the capacity borrower benefit from sharing, while the capacity lender experience reduced profit. We also analyze the effects of model parameters on the equilibrium outcomes, including the revenue-sharing rate, the transfer price of the shared capacity, and the drivers’ retention rate.