Service Deployment in the On-Demand Economy: Employees, Contractors, or Both?
Lijian Lu, Xin Weng, Li Xiao

TL;DR
This paper analyzes how on-demand service platforms decide between using employees, contractors, or both, to maximize profit through service differentiation and workforce composition, considering customer sensitivity and cost factors.
Contribution
It provides a theoretical framework for optimal service and workforce deployment, highlighting when hybrid or single workforce models are most profitable.
Findings
Hybrid workforce deployment can significantly increase profits.
Single workforce models are optimal under certain cost and value conditions.
Conditions for choosing employees, contractors, or both are identified.
Abstract
The recent advancements in mobile/data technology have fostered a widespread adoption of on-demand or gig service platforms. The increasingly available data and independent contractors have enabled these platforms to design customized services and a cost-efficient workforce to effectively match demand and supply. In practice, a diverse landscape of the workforce has been observed: some rely solely on either employees or contractors, others use a blended workforce with both types of workers. In this paper, we consider a profit-maximizing service provider (SP) that decides to offer a single service or two differentiated services, along with the pricing and staffing of the workforce with employees and/or contractors, to price- and waiting-sensitive customers. Contractors independently determine whether or not to participate in the marketplace based on private reservation rates and…
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Taxonomy
TopicsDigital Economy and Work Transformation · Sharing Economy and Platforms · Taxation and Compliance Studies
