Pricing, competition and market segmentation in ride hailing

TL;DR

This paper models competition among ride-hailing platforms as a strategic game with fixed market share, analyzing equilibria and introducing the concept of equilibrium cycles under certain conditions.

Contribution

It introduces a novel game-theoretic framework for ride-hailing competition with fixed market share and explores equilibrium existence and cycles.

Findings

Existence of Nash equilibria under certain QoS metrics.

Non-existence of equilibria under specific parameters leading to equilibrium cycles.

Insights into how competition and cooperation affect platform strategies.

Abstract

We analyse a non-cooperative strategic game among two ride-hailing platforms, each of which is modeled as a two-sided queueing system, where drivers (with a certain patience level) are assumed to arrive according to a Poisson process at a fixed rate, while the arrival process of passengers is split across the two providers based on QoS considerations. We also consider two monopolistic scenarios: (i) each platform has half the market share, and (ii) the platforms merge into a single entity, serving the entire passenger base using their combined driver resources. The key novelty of our formulation is that the total market share is fixed across the platforms. The game thus captures the competition among the platforms over market share, which is modeled using two different Quality of Service (QoS) metrics: (i) probability of driver availability, and (ii) probability that an arriving passenger takes a ride. The objective of the platforms is to maximize the profit generated from matching drivers and passengers. In each of the above settings, we analyse the equilibria associated with the game. Interestingly, under the second QoS metric, we show that for a certain range of parameters, no Nash equilibrium exists. Instead, we demonstrate a new solution concept called an equilibrium cycle. Our results highlight the interplay between competition, cooperation, passenger-side price sensitivity, and passenger/driver arrival rates.