Keynote Speech 1 by Prof. Junhong Chu, The University of Hong Kong

“Bidding or Allocation? The Design of Dispatch Systems in the Ride-Hailing Market”

Abstract

Previous studies have demonstrated that centralized dispatch systems can substantially reduce search frictions and are therefore more efficient than conventional street hails. However, the design of centralized dispatch systems has not been fully investigated in the literature. Two centralized dispatch systems are common in practice: a bidding system, in which drivers bid for a booking request, and an allocation system, in which drivers are allocated to riders by ride-hailing platforms using algorithms.

We develop and estimate a structural model for the ride-hailing market to compare the advantages and disadvantages of these two dispatch systems. On the demand side, we model riders to arrive stochastically in each location during each time period, making a discrete choice over the means of transportation. On the supply side, we model taxi drivers’ decisions over a shift as a finite-horizon dynamic oligopoly game with a two-stage sequential decision in each period. In the first stage, drivers decide whether to pay an attention cost to enter the matching pool for booking trips; in the second stage, unmatched drivers make relocation decisions by choosing which location to head to in order to search for passengers in the next period.

We apply our structural model to Singapore’s taxi market, where a leading ride-hailing company used a bidding dispatch system for booking trips during the data period. We estimate the structural model with detailed trip data and a parametric matching function that enable us to back out unobserved potential demand for street-hailing trips from the high-frequency, large-scale GPS data of vehicle locations and status. We then conduct a counterfactual analysis by replacing the bidding system with an allocation system and make a comprehensive comparison across the two systems.

We find that the allocation system can significantly improve both riders’ welfare and drivers’ shift earnings compared to a bidding system. However, this would incentivize more drivers to join the booking pool, consequently reducing the number of drivers for street hails and increasing riders’ unfulfilled demand for street-hailing trips. Interestingly, we also find that riders’ unfulfilled demand for booking trips increases because more riders request booking trips due to the shortened wait time in an allocation system, and the existing drivers could not accommodate these expanded demands. Our results offer important managerial implications for the design of dispatch systems in the ride-hailing market.

Bio

Junhong Chu is a professor of marketing at the University of Hong Kong (HKU). Before joining HKU, she worked at the NUS Business School as a dean’s chair and a tenured associate professor of marketing and earlier at Peking University as an associate professor of economics. Professor Chu has also visited Harvard University as a research fellow and the University of Michigan as an associate professor.

Professor Chu is an empirical modeler, works on big data, and does quantitative research in marketing and industrial organization. Her research interests include platform markets and the sharing economy, e-commerce, social media, P2P markets, and distribution channels. She applies both the classical and Bayesian approach to study firm competition and consumer behavior.

Professor Chu’s research has been published in leading academic journals such as Marketing Science, Journal of Marketing Research, Management Science, Journal of Marketing, Proceedings of the National Academy of Sciences (PNAS), Nature Human Behaviour, Population and Development Review, and Demography. She was an MSI (Marketing Science Institute) 2011 Young Scholar and has also won several research awards.