Balancing Supply with Demand on Ride-Hailing Platforms in Markets with Price Regulations: An Operational Approach

Abstract

<p><strong><em>Problem definition</em>:</strong> Ride-hailing platforms face a supply-demand imbalance. During peak periods, the demand from passengers far exceeds the supply of drivers, whereas during off-peak periods, there is an abundance of supply but weak demand. The well-studied surge pricing can be challenging to implement in markets where prices are subject to regulation and are inflexible to adjust. We study an alternative operational approach that shifts the supply of drivers from off-peak to peak periods to address the supply-demand imbalance. <strong><em>Methodology/results</em>:</strong> We propose two novel incentive schemes: the <em>qualification</em> scheme and the <em>prioritization</em> scheme. Specifically, the platform sets a work target for the peak period. Under the qualification scheme, the platform assigns off-peak service requests only to drivers who meet the peak period target. Under the prioritization scheme, the platform prioritizes off-peak requests for drivers who meet the peak period target. We analyze the effectiveness of these schemes, considering the openness of the platform’s supply system. For platforms with a closed system that only allows full-time drivers to provide service, the qualification scheme improves the total matching volume to a greater extent but hurts full-time drivers more than the prioritization scheme. For platforms with an open system that also allows the abundant part-time drivers to serve off-peak requests, the prioritization scheme outperforms the qualification scheme in improving total matching volume. Furthermore, the implementation of an incentive scheme in an open system may benefit both the platform and full-time drivers. <strong><em>Managerial implications</em>:</strong> Our study suggests an alternative to surge pricing for on-demand platforms to address the supply-demand imbalance when prices are inflexible. It provides insights for platforms with varying levels of supply system openness in choosing appropriate incentive schemes. The welfare results offer guidance for platforms and policymakers regarding both matching volume and worker welfare.<br></p>