Coordinating supply and demand in ride-sourcing markets with pre-assigned pooling service and traffic congestion externality

Abstract

This paper proposes an equilibrium model to describe a ride-sourcing market with both ride-pooling (RP) and non-pooling (NP) services considering traffic congestion externality. In particular, we develop a deductive model to approximate the pool-matching probability and passengers’ expected waiting time under a pre-assigned pool-matching mechanism with meeting points, which is being used in products like Uber Express Pool. Using the model, we derive the equilibrium properties and examine the optimal operating strategies for achieving two market scenarios, including the monopoly optimum and social optimum. In contrast to the traditional wisdom, we find that the market could exist in one or multiple equilibria, depending on the trip fare difference between RP and NP services. Additionally, we show that average sojourn time first decreases in the vehicle fleet size (when traffic congestion is mild) and then increases in the vehicle fleet size (when traffic congestion is heavy), exhibiting a “smiling curve”. It is found that the monopoly optimum solution is always located in the downward side of the “smiling curve”, which implies the ride-sourcing platform will self-regulate its fleet size to avoid heavy traffic congestion. We also discuss the impacts of potential labor supply and background traffic on the platform’s optimal operating strategy and its optimal profit. This study gains interesting managerial insights that help understand how ride-sourcing platforms determine optimal operating strategies for both RP and NP services by considering traffic congestion externality.