Asymmetric Platform Competition : Concentration vs Diversification Strategy in Ridesourcing Market

We study an asymmetric competition problem of two ridesourcing platforms, one of which adopts a concentration strategy (i.e., only provides transport services) while the other adopts a diversification strategy (i.e., provides both transport and other services). This is a real problem in the current ridesourcing market. Some large platforms have already attracted many riders and drivers, and are committed to increasing the service level to retain their current users. However, in order to attract more drivers to serve on their platforms, some small platforms have started to provide drivers with additional service options. By doing so, they usually contract with an external service operator (ESO) and provide it with an outsourcing service, e.g., providing delivery services to a logistics company, providing discharging services to a power system operator. To quantify the system-wide impact of asymmetric competition in the ridesourcing market, we develop a bi-level optimization model, in which the lower-level problem formulates a Nash game between ridesourcing platforms and the upper-level problem solves the optimal pricing strategy for the ESO taking the response of the contracted ridesourcing platform into account. To obtain the optimum solution of this bi-level pricing problem (BLPP), we first prove the existence and uniqueness of the Nash equilibrium between two ridesourcing platforms and derive several analytical insights. Then, we propose an exact solution algorithm which integrates the relaxed-optimal value function method and the best-response algorithm. Finally, we use a real-world example to validate the performance of the algorithm and derive quantitative results. Our results indicate that if the smaller platform adopts a diversification strategy, both platforms will increase riders' fare and drivers' wage, which exacerbates the profit of the larger platform. However, under some circumstances, the diversification strategy may also undermine the smaller platform