Comparison of three participation modes on ride-hailing platforms

Abstract

With the rapid development of ride-hailing services, various participation modes have emerged on ride-hailing platforms that are recruiting drivers to serve the growing number of passengers. This paper investigates three popular participation modes for a person joining the ride-hailing platform as a driver: car buying mode (BM), short-term leasing mode (SLM), and financial leasing mode (FLM). We compare these three modes and study which is the best choice from the perspective of the driver and platform, considering different types of drivers (myopic or strategic). We develop an analytical model to explore this problem. Interestingly, even when the driver bears a high cost of maintenance, BM always dominates the other two modes for the driver. We find that the platform’s optimal strategy depends on the driver type. FLM will never be an optimal choice for the platform if the driver is strategic. However, if the driver is myopic, FLM will be the best mode under certain conditions. We also find that when the maintenance cost is moderate, regardless of the driver type, the driver and platform can realise a win-win situation with SLM, but otherwise, they are better off adopting BM. Moreover, with moderate maintenance cost, FLM can be a win-win strategy if the driver is myopic. Lastly, our study discloses that increasing the new-driver rewards benefits both the driver and platform only if the driver is myopic and the reward rate exceeds a certain threshold.