The Sequential Pricing of Ride-Hailing System with Rental Service in the Context of Fleet Electrification

Abstract

Surging demand and reduced capacity in the ride-hailing industry have prompted numerous ride-hailing platforms to build their own car-rental services catering to drivers who do not possess private vehicles. However, the trade-off between the ride-hailing service and the car-rental service is an important issue that is still unclear in theory. Moreover, ride-hailing platforms are transitioning towards all-electric fleets in the context of Carbon Neutrality goals and government regulations. This paper considers a ride-hailing system comprising a monopolist ride-hailing platform, an electric vehicle (EV) rental firm, and a gasoline vehicle (GV) rental firm. Furthermore, we build a stylized model to study the sequential pricing of the system. The equilibrium outcomes show the significant impact of the ride-hailing platform’s decision to continue or withdraw offering EV rental services on EV and GV drivers’ net earnings, rental prices, and wages. The ride-hailing platform providing EV rental services increases EV drivers’ net earnings but decreases the GV driver wages and rental prices. However, the EV rental service offered by the ride-hailing platform does not necessarily lead to an increased total profit for the system. The improved profitability of the system by the ride-hailing platform providing EV rental services is contingent upon lower rider prices and higher fuel costs. The ride-hailing platform’s EV rental services provision also effectively fosters the ride-hailing fleet’s electrification. Furthermore, as the number of riders increases, the ride-hailing platform should reduce the commission rate for EV drivers to maintain competitiveness and profitability.

Keywords

Ride-hailing system / car rental / fleet electrification / sequential pricing / differential wage scheme

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