Economic analysis of ridesourcing markets considering driver order cancellation and platform subsidy

Abstract

This paper models the ridesourcing market with an explicit consideration of driver order cancellation, and examines the impacts of driver order cancellation on the market. The operation strategy (service pricing, fleet sizing, subsidy to drivers) of the ridesourcing platform has been examined in the presence of driver order cancellation, where the operator maximizes platform profit or social welfare. It is found that the maximum platform profit and/or rider demand after considering driver order cancellation will be smaller than those when order cancellation from drivers is not considered (baseline scenario), i.e., ignoring driver order cancellation will overestimate profit and social welfare. Our results also show that subsidy to drivers to avoid driver order cancellation should be properly set, while compensating the drivers for the whole pickup distance may indeed reduce platform profit when demand is excessive or supply is insufficient.