Ride-sourcing Service Pricing and Cancellation Penalty under Service Arrival Time Uncertainty

Abstract

This study investigates ride-sourcing service pricing and order cancellation penalty in a duopoly market under service arrival time uncertainty. Order cancellation is wasteful to the service provider and society as a whole due to the incurred unproductive congestion and therefore, should be minimized either by penalty or regulation. Certain cancellations are inevitable, due to customer trip changes; others, however, arise from ordering from two service providers, necessitating the need for cancellation. We model the service arrival time perception via an inhomogeneous Poisson process and derive the cancellation behavior in a stochastic manner. A game-theoretic approach is then developed to formulate the competitive market equilibrium. For comparison, we also study the monopoly market as a benchmark. The monopoly market is found to be better in terms of order cancellations and service waiting times, but worse in trip fares for large markets. Based on these results, we propose possible regulatory interventions to reduce wasteful order cancellations.