On Network Effects in the Ride-Sourcing Market with Heterogeneous Users

We present a model of the ride-sourcing market where users differ in their characteristics. Passenger demand is derived in terms of passengers’ value of time and willingness to pay. Driver supply is derived in terms of drivers’ value of time and willingness to accept. Demand and supply are matched based on a general bilateral matching function. Contrary to intuition, we find that both the same-side and cross-side network effects at a stationary equilibrium state can be either positive or negative, which are determined by the signs of terms called characteristic times. Characteristic times depend on factors such as distributions of user characteristics, the endogenously determined passenger waiting time and driver idle time, the returns to scale of the production of passenger-driver matchings, platform price structure, and driver cost function. A numerical experiment is presented to illustrate these theoretical findings.