Welfare Impact of Bilateral Rating Display in Ride-Sharing Platforms

Problem definition: The bilateral rating display system (BRDS), popularized by ride-sharing platforms, shows riders’ ratings to drivers when the driver receives an order dispatched by the platform. This contrasts with traditional business settings where only the service providers’ ratings are displayed to customers (unilateral rating display system (URDS)). Although BRDS allows drivers to make more informed decisions, it also poses challenges, such as the potential for drivers to reject riders based on their ratings. Such rejections could harm both riders and the platform. Methodology/results: Our paper builds a game-theoretic model to study the impact of BRDS on all stakeholders in the context of ride-sharing services. We highlight how the subtle interplay between rating display and system congestion can improve welfare and boost the platform’s revenue. BRDS can help regulate matchings, resulting in a Pareto improvement over URDS when riders’ valuations are below a threshold. Managerial implications: BRDS provides a nonpecuniary operational lever to mitigate incentive conflicts between platforms and drivers over revenue sharing. The platform achieves a higher revenue share when riders’ valuations are low, whereas drivers receive a higher revenue share when riders’ valuations are high, compared with URDS. BRDS can help regulate congestion, leading to improved system performance. Funding: All authors acknowledge The Wharton School Dean’s Postdoctoral Research Fund and Mack Institute Research Fund. C. Jin gratefully acknowledges the Singapore Ministry of Education Academic Research Fund Tier 1 [Awards T1251RES2101 and T1251RES2501]. Supplemental Material: The online appendices are available at https://doi.org/10.1287/msom.2022.0472 .