Strategically Giving Service: The Effect of Real-Time Information on Service Efficiency

Abstract

Problem Definition: The use of real-time information in on-demand services provides agents with access to an unprecedented amount of information about their competitors. We study the impact of the increased availability of real-time information on the behavior of strategic agents and the implications of this phenomenon for service efficiency. Academic/Practical relevance: E-hailing companies provide service via independent contractors; thus, the platforms do not have direct control over the service location of their service agents. Therefore, it is important to understand how sharing real-time information impacts agent behavior and the implications of this behavioral response for the platform efficiency. Methodology: We use data from one of the leading e-hailing taxi platforms in South America to empirically study the real-time reactions of agents to the dynamic entry of new competitors into their service zones. Results: Information about competitors' locations could potentially induce herding behavior (because competitors' actions may convey information about market opportunity) or scattering (because the entry of competitors reduces expected market share and the appeal of a service zone). We find that the net response to real-time information indicating the entry of new competitors in a service zone is an increase in the scattering of agents previously in that service zone. The response is not homogeneous, as some agents are more likely than others to respond to entry. We find that those agents who are more likely to scatter in reaction to the real-time entry of competitors achieve higher utilization. We investigate the consequences of this behavior for the efficiency of service systems. Managerial implications: Our results indicate that although platforms cannot determine the service location of their agents, they can improve the service efficiency through real-time information sharing. However, in order to maximize platform profit and efficiency platforms should treat workers with different sophistication levels.