Do Workers and Customers Benefit from Competition Between On-Demand Service Platforms?

Abstract

Problem Definition: We study the impact of competition between two on-demand service platforms on worker welfare and consumer surplus. The platforms compete for both workers and customers by deciding on wages to pay workers and prices to charge customers. Workers, who are heterogeneous in their opportunity costs, are sensitive to both the wage they receive and the amount of work they are allocated. Customers, who are heterogeneous in their preferences for the platforms, are sensitive to both the price and the amount of delay they experience. Academic/Practical Relevance: Competition between on-demand service platforms gives rise to several important questions. How does competition affect wages and prices and does competition necessarily lead to higher wages and lower prices? Does competition make workers busier or does it lead to more worker idleness? More importantly, does competition necessarily lead to higher worker welfare and higher consumer surplus? If not, under what conditions does competition harm either workers or customers? Methodology: We use an equilibrium model to study price-wage strategies of platforms. We compare equilibrium outcomes with and without competition, accounting for worker heterogeneity in terms of opportunity cost and customer heterogeneity in terms of platform preference. Results: We show that competition does not necessarily lead to higher worker welfare and higher consumer surplus. In particular, we show that when the worker pool size is sufficiently large and customer stickiness (the strength of preference of customers for one platform over another) is moderate, both workers and customers are worse off under competition than under monopoly (with workers being busier but earning less, and customers paying more but experiencing more delay). Managerial Implications: We distinguish two forces that explain our results: multi-homing on the worker supply side and market expansion on the customer demand side. Such information could be useful for policy makers and platform managers as they consider the implications of competition between on-demand service platforms on social welfare and profit.