Ridesourcing systems: A framework and review

Hai Wang, Hai Yang
2019 Transportation Research Part B: Methodological  
With the rapid development and popularization of mobile and wireless communication technologies, ridesourcing companies have been able to leverage internet-based platforms to operate e-hailing services in many cities around the world. These companies connect passengers and drivers in real time and are disruptively changing the transportation industry. As pioneers in a general sharing economy context, ridesourcing shared transportation platforms consist of a typical two-sided market. On the
more » ... d side, passengers are sensitive to the price and quality of the service. On the supply side, drivers, as freelancers, make working decisions flexibly based on their income from the platform and many other factors. Diverse variables and factors in the system are strongly endogenous and interactively dependent. How to design and operate ridesourcing systems is vital-and challenging-for all stakeholders: passengers/users, drivers/service providers, platforms, policy makers, and the general public. In this paper, we propose a general framework to describe ridesourcing systems. This framework can aid understanding of the interactions between endogenous and exogenous variables, their changes in response to platforms' operational strategies and decisions, multiple system objectives, and market equilibria in a dynamic manner. Under the proposed general framework, we summarize important research problems and the corresponding methodologies that have been and are being developed and implemented to address these problems. We conduct a comprehensive review of the literature on these problems in different areas from diverse perspectives, including (1) demand and pricing, (2) supply and incentives, (3) platform operations, and (4) competition, impacts, and regulations. The proposed framework and the review also suggest many avenues requiring future research. Transportation Research Part B 129 (2019) 122-155 123 definition of the sharing economy is still a matter of debate (e.g., Belk, 2014; Frenken, 2017 ; and Frenken and Schor, 2017 ) , these shared transportation companies, as providers of on-demand transportation services on online platforms, are often viewed as pioneers in a general sharing economy. The recent penetration of mobile internet technologies in our daily lives has enabled the rapid expansion of these ridesourcing services. Uber, for instance, has grown from a ridesourcing service provider to a one-stop mobile transportation platform, offering a variety of services in more than 700 metropolitan areas in 65 countries. It offers a menu of services, including UberX (the least expensive service), Uber Black (executive luxury service), Uber Pool (ridesplitting service), Taxi (taxi service on platform), SUV (luxury service with extra seats), etc., to more than 91 million users with 15 million daily trips as of mid-2019, according to data collected by a third-party (see DMR, 2019a ). Didi, the largest shared mobility platform in China, offers services including Taxi (taxi service on platform), Express (the least expensive service), Premier (mid-price upgraded service), Luxe (executive luxury service), Pool (ridesplitting service), Hitch (ridesharing service), Minibus (minibus shared-ride service), Designated Driving (designated driver for passenger's own vehicle), Bike-sharing (bicycle-sharing service), etc., to more than 550 million users in 400 cities in China, with 30 million daily trips as of mid-2019 (see DMR, 2019b ). These companies are emerging as a disruptive force for the conventional transportation industry. They are also deploying electric vehicles and developing self-driving technologies to address the transportation needs of citizens in a sustainable urban ecology. Ridesourcing companies provide a platform for and/or intermediary means of connecting demand (i.e., passengers) and supply (i.e., drivers) (see, for example, Shaheen et al., 2017 , Mobility on Demand Operational Concept Report). Passengers enter their travel request details on an e-hailing mobile app, including trip origin, destination, departure time, and service type; idle drivers affiliated with the platform may cruise around the city or wait at specific locations. The online platform then enables a convenient match between passengers and drivers using matching and order dispatching algorithms. The platform charges a fare to passengers and pays a wage and/or bonus to drivers. The difference between the fare and the wage is the commission withheld by the platform, which is normally between 15% and 30%, depending on the time, region, and company. After each trip, passengers can rate the drivers who provided the transportation service, which helps to quantify the quality of service provided by the affiliated drivers. The ridesourcing platforms consist of a typical two-sided market, which is a meeting place for two groups of agents (passengers and drivers, in this case) who interact and provide each other with network benefits. Tirole (2003, 2006 ) demonstrate the commonality across seemingly different businesses and markets with a clear characterization of the two-sided market. A two-sided market provides a platform that enables interactions between end-users and works to align the two sides by charging each side appropriately. Mathematically, consider a platform charging a b and a s per-interaction to the buyer and seller sides. The market for interactions between the two sides is one-sided if the volume V of transactions realized on the platform depends only on the aggregate price level a = a b + a s , i.e., is insensitive to reallocations of the total price a between the buyer and the seller. If by contrast V varies with a b and a s while a is kept constant, the market is said to be two-sided. Specifically, in the context of ridesourcing, passengers and drivers are sensitive to the prices and wages of the service, which are the critical decisions the platform makes to coordinate and balance demand and supply. The volume of transactions (i.e., the number of served orders) depends on both the price charged to the passengers (i.e., a b ) and the wage paid to the drivers (i.e., − a s ) when a b + a s is a constant. These features motivate various operational strategies, such as "dynamic or surge pricing/wage," by which the platform adjusts both the prices and wages dynamically depending on real-time supply and demand information, taking both platform performance (such as revenue, number of served orders, market share, and profit) and social welfare (including passenger utility and driver income) into consideration. In conventional taxi businesses, drivers, who are often employees of taxi companies, are usually required to obtain an occupational license, or "medallion," to provide transportation services to passengers. In practice, there is great variety in taxi regulations, which vary widely between countries or even regions or cities. In some cases, the regions in which drivers can pick up passengers are restricted to the jurisdiction that issued the medallion, and fares are often set by regulatory bodies. In some places, taxi drivers are required to work full-time, and in others, taxi drivers may schedule their work flexibly as private business owners. By comparison with conventional taxi businesses, ridesourcing systems provide private car owners with opportunities for more flexible working, providing an additional source of service providers to satisfy on-demand travel requests. In ridesourcing systems, drivers, often freelancers, can use their own or leased cars to offer transportation services whenever and wherever they choose, subject to fewer regulations than taxi drivers. They design their working schedules more flexibly and decide whether, when and how long to work on the platform on a day-to-day basis in response to many factors, such as wage and income fluctuations. Another key difference is that drivers in ridesourcing systems cannot be hailed in the street, in contrast to conventional taxi drivers for whom hailing is the main source of passengers. The emergence of ridesourcing systems and the ways in which they differ from conventional taxi systems raises controversial issues and regulatory problems, such as unclear regulation of labor relations between platforms and drivers, the debatable effects of surge pricing, "gray" tax enforcement on driver income, inconsistency between platform interests and social welfare, and other societal and environmental impacts. Designing and operating ridesourcing systems is vital-and challenging-for all stakeholders: passengers/users, drivers/service providers, platforms, policy makers, and the general public. In this paper, we propose a general framework to describe ridesourcing systems. The framework can aid understanding of interactions between endogenous and exogenous variables, their changes in response to platforms' operational strategies and decisions, multiple system objectives, and
doi:10.1016/j.trb.2019.07.009 fatcat:m5rxzhsxsfaunoep77nsqdhbny