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Pricing decisions of car aggregation platforms in sharing economy: a developing economy perspective

  • Research Article
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Journal of Revenue and Pricing Management Aims and scope

Abstract

Unlike developed economies, developing economies lack surplus assets that have fueled the growth of sharing economy through various digital platforms. In this research, we build a system dynamics model of a ride sharing platform in a developing country that endogenizes the growth of the platform in the presence of stickiness of the asset provider, since platform growth can occur only through new investments in assets that have limited utility outside the platform. Our modeling approach enables capture of two-sided positive network externalities and the same-side negative externalities together in the same framework. Simulations illustrate that the pricing and incentive decisions taken by the platform to overcome the problem of initial asset unavailability have long-term consequences on various parameters of performance of the platform such as driver’s profits, platform revenues, and the level of prices of services.

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Notes

  1. In a nightclub, if men gain more from interacting with women than vice versa, then we can expect that nightclubs will have a tendency to offer lower entry fees to women than to men.

  2. Most cab aggregators also have a usage charge and fixed minimum charge (for x Kms). However, for simplicity we assume that this usage charge can be suitably adjusted into the per Km charge.

  3. https://timesofindia.indiatimes.com/companies/new-taxi-norms-allow-surge-pricing-up-to-four-times/articleshow/55991451.cms.

  4. We do not lay emphasis on profits of the platform owner because there is lack of clarity on the costs associated with the platform management. The incentive costs may be treated as marketing costs essential to resolve the chicken and the egg problem and develop a market as is the case with most startups initially when the focus is on growth rather than actual profits because of the winner take all dynamics associated with Internet platforms.

  5. In addition to the parameters, we also assume that there will be exit rates of the drivers based on the profits made by them. We model it similar to the entry rate of drivers.

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Author information

Authors and Affiliations

  1. Indian Institute of Management Rohtak, Rohtak, Haryana, 124001, India

    Agam Gupta

  2. Indian Institute of Management Calcutta, Kolkata, India

    Biswatosh Saha

  3. International Management Institute (IMI), New Delhi, India

    Parthasarathi Banerjee

Authors
  1. Agam Gupta
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  2. Biswatosh Saha
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  3. Parthasarathi Banerjee
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Corresponding author

Correspondence to Agam Gupta.

Appendix

Appendix

  1. 1.

    Lookup for decline in demand as percentage of consumer demand for different surge prices on the platform

    figure a
  2. 2.

    Lookup for consumer growth rate

    figure b

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Gupta, A., Saha, B. & Banerjee, P. Pricing decisions of car aggregation platforms in sharing economy: a developing economy perspective. J Revenue Pricing Manag 17, 341–355 (2018). https://doi.org/10.1057/s41272-018-0145-1

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  • DOI: https://doi.org/10.1057/s41272-018-0145-1

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