Build or cooperate with a bike-sharing system? Operation mode selection of metro operator with different information sharing strategies

Abstract

To fill the last-mile service gap, a metro operator possessing superior demand information can either build a public bike system incurring a setup cost or cooperate with an existing bike-sharing company through cost-sharing mechanism to provide metro+bike services, corresponding to self-owned mode (S mode) or partnership mode (P mode), respectively. Note that the metro operator acts as a centralized decision maker with a symmetric information structure under the S mode, whereas with an option to share information or not under the P mode. We model a multistage game framework to investigate how the interplay between information sharing strategy and operation mode selection could create value for a metro+bike system with demand uncertainty. From our analysis, information sharing leaves both the metro operator and the bike-sharing company better off, and such positive effect can be strengthened by accurate demand information, especially for the bike-sharing company. Our results, therefore, suggest more caution in the metro operator’s information strategy to prevent his partner from free-riding. When the sharing strategy is in place, a metro operator with weaker predictive capabilities is typically expected to transfer the risk arising from forecasting errors to a partner by engaging in the P mode. Despite expectations, the result indicates that the cost advantage created by a sufficiently high investment efficiency can potentially offset the information disadvantage, ultimately favoring the S mode. We also solve the dual-mode operation cases that allow public bikes and shared bikes to coexist in the marketplace, thereby forcing service providers to engage in Bertrand price competition. Through comparative analyses, we identify that the incentive for the metro operator to share demand information hinges critically on cost efficiency. To elaborate, information sharing is more likely to occur when convenience investment expectations are pessimistic.