Short-term subsidy strategy for new users of ride-hailing platform with user base

Abstract

Short-term subsidy strategy for new passengers and drivers (hereafter strategy S) has been frequently adopted by ride-hailing platforms. However, how to set the suitable subsidy is still unclear. This paper examines the strategy S of ride-hailing platform(s) in the monopoly and duopoly markets, respectively. The results show that adopting strategy S is profitable for the ride-hailing platform when the user base of either passengers or drivers is small in the monopoly market. In the duopoly market, adopting strategy S is profitable for the ride-hailing platform when the user bases of both passengers and drivers are small. Moreover, in the monopoly and duopoly markets, adopting strategy S cannot effectively increase social welfare when the user bases of both passengers and drivers are large.