Pricing and penalty/compensation strategies of a taxi-hailing platform

Abstract

Smartphone-based taxi-hailing applications (apps) bring about significant changes to the taxi market in recent years. As platforms that connect customers and taxi drivers, taxi-hailing apps charge different rates for completed orders and penalize reservation-cancellation behaviors with different fines. In this paper, an equilibrium framework is proposed to depict the operations of a regulated taxi market on a general network with both street-hailing and e-hailing modes for taxi services, considering the reservation-cancellation behaviors of e-hailing customers. Based on the proposed equilibrium model, an optimal design problem of taxi-hailing platform’s pricing and penalty/compensation strategies is formulated and solved by the penalty successive linear programming algorithm. To demonstrate the practicability of the proposed solution algorithms and the optimal pricing and penalty/compensation schemes, large-scale numerical examples are presented based on a realistic taxi network of Beijing.