Harnessing the Double-edged Sword via Routing: Information Provision on Ride-hailing Platforms
We consider a ride-hailing platform that provides free information to taxi drivers. Upon receiving a rider’s request, the platform broadcasts the rider’s origin and destination to idle drivers, who accept or ignore the request depending on the profitability considerations. We show that providing such information may reduce drivers’ equilibrium profit. Hence information provision is a double-edged sword: the drivers may choose to take more profitable riders via “strategic idling”. When multiple drivers compete for the same request, how the platform breaks the tie affects the incentives of the drivers. We propose a routing policy that can align the incentives and achieve the first-best outcome for large systems.