Optimal Pricing for Ride Sharing

Abstract

The ride sharing business has developed rapidly in recent years. The pricing of the ride sharing service is critical for the profitability of the operators. Pricing too high may reduce passenger demand, and hence increase detours and distance, while pricing too low may reduce the revenue. In order to analyse the dynamics of optimal pricing, a mathematical model is developed to maximise the total profit. In the model, the higher-level pricing decision depends on the lower-level order assignment and routing problem. Numerical experiments with the model show that the operator does not necessarily benefit from providing the ride sharing option. The pricing of ride sharing is critical for profitability. When the total travel demand is high (e.g., in peak hours), the operator should adopt a lower relative pricing in order to maximise profit.