The role of surcharge policy on a ride-hailing service platform with long-distance drivers

Abstract

Many ride-hailing service platforms have launched a surcharge policy to schedule long-distance drivers to meet demand during regionally peak demand periods. When someone is unwilling to wait in line until there exists an idle local driver to match, he/she would choose the surcharge policy to quickly match long-distance drivers and get fast service through paying a surcharge. With heterogeneous congestion-sensitive customers and reservation rates of local and long-distance drivers, this paper explores the role of the surcharge policy for a ride-hailing service platform's profit, consumer surplus and driver surplus. We find that when the potential demand increases, the platform sets a lower surcharge to shift the demand to those customers with the surcharge policy. Influenced by network externalities, increasing the number of long-distance drivers causes the platform to initially increase and then decrease the surcharge. There exists a threshold of the number of local drivers, below which the platform under the surcharge policy can gain a higher profit than the situation without the surcharge. However, only the surplus of customers who choose to wait for local drivers is beneficial, while other customers and drivers suffer losses, indicating that the proposed policy cannot result in an all-win outcome for all parties.