Dynamics of Ride Sharing Competition

Abstract

This paper studies the dynamics of ride-sharing competition. Ride-sharing is modelled as a spatial two-sided market with heterogeneous passengers and drivers, both located on a Salop (1979) circle. The model is simulated to study four aspects of ride-sharing competition:(i) price distribution and dynamics, (ii) strategic pricing, (iii) fixed pricing vs. surge pricing, and (iv) information-sharing. Dynamic platform competition in a spatial setting can generate distinct and persistent bands of fluctuating prices. Space and stochastic luck can mitigate winner-take-all effects in price competition. Platforms adopting fixed pricing can compete with platform with surge pricing provided the former are not set too high. However, space and stochastic luck can also render the outcomes of such competition uncertain. Information sharing eliminates price fluctuations by pooling information on demand. The complexity of ride-sharing implies that the impact of policy interventions cannot be known in advance in some cases.