Two-Sided Platform Competition in Sharing Economy

We examine competition between two-sided platforms in a sharing economy using ride sharing as an example. In this economy, drivers self-schedule their supply based on the wage they receive. The platforms compete for drivers as well as riders. To attract drivers, platforms have used diverse wage schemes, including fixed commission rate, dynamic commission rate, and fixed wage. We develop a model to examine the impacts of the self-scheduled nature of the supply on competing platforms and the role of the wage scheme in the platform competition. We find that the price competition between platforms is more intense in a ride-sharing economy compared to an economy with a fixed supply of drivers if and only if the platforms serve more riders and drivers in the sharing economy than the traditional economy, regardless of the wage scheme employed by the platforms. Further, any of the three wage schemes can be the best for the platforms and the worst for riders and drivers, depending on the market characteristics. In markets where the competition on the demand side is more fierce than on the supply side, the fixed-wage scheme results in the highest profits for the platforms and lowest surpluses for riders and drivers. In contrast, in markets where the competition on the supply side is more competitive, when the supply is highly (mildly) more competitive, the fixed-commission-rate (dynamic-commission-rate) scheme generates the highest profits for platforms, leading to the lowest surpluses for riders and drivers and the lowest social welfare. The differential impacts of the wage scheme on the price (demand-side) and quantity (supply-side) competition explain our findings