The strategic analysis of service mode selection for a ride‐hailing platform

Abstract This paper examines the service mode selection strategy of a ride‐hailing platform and analyzes the impact of the strategy on consumers and drivers. The platform has three service modes to select from, including Mode L (only low‐quality services), Mode H (only high‐quality services), and Mode HL (high‐ and low‐quality services). We find that each service mode does not affect the price and the wage of the low‐quality service but affects those of the high‐quality service. Additionally, the platform cannot optimally select Mode L. The platform is better off if the car quality difference between high‐ and low‐quality services (CQD) is small and is worse off otherwise, under Mode HL. Counter‐intuitively, it is conditional for Mode HL to bring the highest surpluses to both consumers and drivers, and the conditions are related to CQD, social status utility of consumers and cost ratio between the drivers providing the two types of services.