Abstract for: System Analysis of Ride-Hailing Business Models Using Game Theory
Ride-hailing business models have grown rapidly, but even the most successful companies have yet to achieve profitability. Providers fight for market share with low prices and incen-tives, expecting to achieve profitability after gaining market power. However, there is no exist-ing research on what makes providers profitable depending on the competitive environment. The objective of this study is therefore to identify dominant pricing and incentive strategies for achieving long-term profitability with respect to the competitive market structure. The research questions are answered using a combined System Dynamics and Game Theory approach. The System Dynamics model consists of multiple providers competing for customers and drivers. A Choice-Based Conjoint analysis was conducted to quantify customer preferences. Based on the model, sensitivities are analyzed with a two-step game in which each step is simulated over several months and providers can choose among different price, incentive, and commission strategies. We analyze the impact of the competitive structure on the resulting profitability by running multiple simulations with different numbers of providers and varying provider sizes. Preliminary results indicate that the relative provider size strongly affects the profitability of the provider due to indirect network effects.