Impacts of differentiated services and competition on the pricing strategies of ride‐hailing platforms

Abstract

Differentiated services and competition have made the operation of ride‐hailing platforms (i.e., Uber and Didi) more complex. Timely optimizing their pricing strategies will be conducive to the profitability of the platform enterprises. This paper considers the differentiation in service level of two ride‐hailing brands and the Bertrand price competition between platforms, and we propose dynamic, differentiated, and static pricing strategies based on the market demand fluctuation. The optimal prices in each case are derived, and the impacts of the Bertrand competition and differentiated services on the platform's optimal pricing strategies are analyzed. Our results show that competition between platforms will change the impact of the demand fluctuation on the optimal decisions of the platform. Additionally, we find that the optimal prices of two ride‐hailing brands all increase with the coefficient of service differentiation, but the optimal price of the brand with higher service level is increased faster. The numerical studies indicate that if one of the two platforms gives priority to offering differentiated services, the profit loss caused by competition can be attenuated to a great extent.