Pricing Decisions for Competitive Ride-Hailing Platforms with the Combination of Inner-Group and Inter-Group Network Externalities

Abstract

Based on two-sided market theory, this paper has studied the pricing problem of ride-hailing platforms with a combination of inter-group network externality and inner-group network externality. Two scenarios of user structure are considered. In scenario 1, both travellers and drivers are single-homing. In scenario 2, travellers are single-homing while drivers are multi-homing. Moreover, time sensitive factors and driver’s commission rate are introduced to reflect the characteristics of transport industry. Finally, the impact of network externality, time sensitivity, driver’s commission rate and entry cost on ride-hailing platform pricing, user scale and profits are analysed. The results show that inter-group network externality and inner-group network externality have a negative effect on platform prices charged to both travellers and drivers. However, when travellers are multi-homing, the price charged to travellers is positive with respect to the inter-group network externality from drivers. In the relationship between travellers’ scale and inter-group network externality, inner-group network externality is positive. Further, in both scenarios, the network externalities from the two sides affect platform profits negatively.