Strategic driver repositioning in ride-hailing networks with dual sourcing

Abstract

In ride-hailing markets, the spatial mismatch between supply and demand characterizes one of the most fundamental operational bottlenecks. The voluntary customer search of drivers is oftentimes inadequate for narrowing the demand-supply gaps and falls short in responding timely to the dynamic market conditions. To facilitate better supply management, some ride-hailing platforms now adopt a dual-sourcing strategy by converting some freelance drivers as contractors, who would then follow platforms’ guidance on repositioning movements when idle. This paper thus aims to analyze the implications of such a dual-sourcing strategy on the overall operations of ride-hailing services. We consider a monopolistic platform that owns a blended workforce, with freelance drivers searching for customers following their own preferences whilst contracted drivers repositioning in a centralized manner as system actuators. A mixed network equilibrium model is devised to capture the interplay between the idle repositioning movements of both parties. The theoretical existence of the mixed equilibrium is proved, and real-world data is invited to quantify the effects of dual sourcing on various market sectors. Our numerical results confirm the effectiveness of dual sourcing in smoothing operations, increasing customer demand, and driving up the revenue of ride-hailing services. However, the benefit of dual sourcing to the platform remains sensitive to the proportion of contractors in the entire workforce as well as the stimulative commission beyond their regular service income.