A MODEL OF RIDEHAILING

Abstract

This paper develops a new model that analyses network externalities specific to the ridehailing industry. Network externalities are captured by a waiting time cost variable, which is a function of the demand by riders and supply of drivers. In turn, demand by riders and supply of drivers are both influenced directly or indirectly by prices and commission rates charged by the platform. This paper thus analyses the optimal pricing decisions by ridehailing platform(s) under different market structures. A preliminary numerical analysis does not conclusively demonstrate the existence of a superior market structure. More research to expound the ideas in this paper is thus warranted to understand ridehail platform competition better.