Fundamentals of ride-sourcing market equilibrium analyses

Abstract

This chapter first presents the fundamental methodologies used for the equilibrium analysis of ride-sourcing markets. Mathematical models of the stationary equilibrium state of ride-sourcing services typically consist of three major components: a passenger demand function, a driver supply function, and the modelling of matching frictions. The passenger demand function characterises the realised passenger demand as a function of the trip fare and the expected waiting time; the driver supply function stipulates that the number of drivers who are willing to offer ride services is governed by their expected earnings per hour, and the matching component characterises the matching frictions arising from the bilateral matching and searching of passengers and drivers. Subsequently, the monopoly optimum and social optimum of a platform is examined, in which the platform profit and social welfare are optimised, respectively, by varying the trip fare and wage. The Pareto-efficient frontier—along which neither the platform profit nor the social welfare can be unilaterally improved without reducing the other—is also examined and discussed.