Optimal pricing and availability strategy of a bike-sharing firm with time-sensitive customers

Abstract

In the context of bike-sharing, availability is a critical factor that impacts customers' travel behavior as well as the bike-sharing firm's profit. In this paper, we investigate how the bike-sharing firm should develop its pricing and availability strategy when its customers have heterogeneous time-sensitive preferences. Specifically, we propose a model in which a monopolistic bike-sharing firm leases bikes to customers and find that a high availability rate makes potential customers more likely to use the bike-sharing service. We then analyze the bike-sharing firm's decision to increase availability by raising the availability cost to optimize profits. We also discuss the effects of a subsidy policy on improving availability, the firm's profit, the consumer surplus and social welfare. We analyze the optimal decisions of the firm and the social welfare-maximizing subsidy policy. We then compare the social welfare achievable under different subsidy levels and different levels of the availability cost. Some of our results are notable. First, a low availability cost yields high social welfare regardless of the subsidy policy. Second, when the availability cost is relatively high, further increasing the subsidy to mitigate the availability risk may not necessarily improve the social welfare of bike-sharing.