Profitable market mechanism for platform-based aggregator taxi services

Abstract

For platform based aggregator taxi services, selling the rides through appropriate channels is critical. Typically, aggregators use a listed price strategy in the regular and opaque channels for the passengers. The listed price channels’ rigidity restricts the passengers to only accept or reject rides without further involvement. We propose an additional ‘Name Your Own Price’ (NYOP) channel with opaqueness in terms of features and extra waiting time that captures the passengers’ and drivers’ preference. The passengers with low ride valuation who were previously priced out of the market can be accommodated by NYOP since it offers rides at a reduced price. In our model for the drivers, we specifically analyze an incentive-practice where the drivers are offered a lump-sum amount for completing a threshold number of trips on a day-to-day basis. When such incentives are offered by the aggregator to the drivers, we find that a rational driver in NYOP should aggressively bid for a ride if the driver is away from the threshold for incentives, and vice versa. We show that with higher levels of opacity, the aggregator can achieve higher levels of passenger segmentation that in turn increases the overall aggregator’s revenue. Also, NYOP offers additional rides for drivers, which will generate extra revenue, and it also helps them reach the incentive threshold set by the aggregator. Furthermore, we demonstrate that the increase in the number of rides due to NYOP can be capitalized by the aggregator for generating additional revenue.

Keywords

• Sharing economy
• Taxi pricing
• Name Your Own Price
• Reverse Name Your Own Price
• Target based incentives