Carpool services for ride‐sharing platforms: Price and welfare implications

Abstract There has been rapid growth in on‐demand ride‐hailing platforms that serve as an intermediary to match individual service providers (drivers) with consumer demand (riders). Several major players of this market have introduced carpool services that allow passengers heading toward the same direction to share a ride at a discounted fare. In this article, we develop an analytical model to study the pricing issues of ride‐sharing platforms in the presence of carpool services, and their economical and social implications. We show that the carpool service should be provided when its quality and/or the pooling efficiency is high. When the platform finds it optimal to offer the carpool service option, the platform achieves a larger market coverage and the riders are able to enjoy more affordable rides without compromising on service quality. Our analysis reveals that the provision of carpool services benefits the platform and the riders in general, but may hurt the drivers.