Harness the power of patience: Evaluating on-demand, reservation, and mixed service models in ride-hailing

Problem Definition: This paper examines a ride-hailing platform catering to time-sensitive passengers through on-demand service (SoD), reservation service (SoR), or a mixed service model (MS). SoR requires passengers to book rides in advance, ensuring scheduled pick-ups, while SoD allows passengers to request rides instantly as needed. We investigate optimal operational strategies, focusing on wage and pricing decisions and the profitability of these service types across different market conditions.

Methodology/Results: We develop game-theoretic models for all three service types to optimize platform profits while incorporating key factors such as passenger delay sensitivity and en-route time-dependent service capacity. Our findings indicate that SoR consistently commands higher prices than SoD, while SoD benefits from greater driver utilization in large markets, leading to lower wages. Profitability comparisons depend on market conditions: SoR outperforms SoD in small markets due to its ability to charge premium prices, while SoD benefits from higher service capacity in large markets. The mixed model surpasses both in intermediate markets by balancing efficiency and punctuality. Additionally, we show that by appropriately constraining the proportion of reservation services, the platform can achieve the first-best solution, just as it would with optimal driver allocation.

Managerial Implications: Our findings offer practical guidelines for ride-hailing platforms in selecting service types and optimizing operational strategies and highlight the effectiveness of light-touch operational interventions, where minor adjustments can yield optimal results without rigid enforcement.