Thursday, October 12, 2017
Maxime C. Cohen, New York University (NYU) - Leonard N. Stern School of Business and Renyu (Philip) Zhang, New York University Shanghai examine Coopetition and Profit Sharing for Ride-Sharing Platforms.
ABSTRACT: The introduction of on-demand ride-hailing platforms totally changed the way people commute. In recent years, several firms entered this market to directly compete with traditional taxi companies. These online platforms often offer a carpooling service in which several passengers heading in the same direction can share a ride by being efficiently matched to an available vehicle. Examples of such services in NYC include uberPOOL, Lyft Line and Via. Recently, some of these platforms decided to engage in a profit sharing contract with one of their competitors by introducing a new hybrid service. For example, on June 6, 2017, Via officially announced a partnership with an online NYC taxi-hailing platform called Curb. This partnership allows riders to order a taxi, and share some portion of the trip with other riders by using Via's efficient matching algorithm. Since these two platforms are competing with each other, this form of partnership is often referred to as coopetition. This paper is motivated by this specific type of coopetition. We model the price competition between ride-hailing platforms by using the Multinomial Logit choice model, and show that a unique equilibrium exists. Then, we analyze the impact of introducing the new joint service to the market. Interestingly, we show that a well-designed profit sharing contract benefits both platforms. This result admits a similar win-win outcome as in the supply chain contract literature, even though these two settings are very different. In addition, we show that one can design a profit sharing contract that also benefits the riders and the drivers. Consequently, such a coopetition partnership may benefit every single party (riders, drivers and both platforms) when using a properly designed profit sharing contract.