Regulate or Ignore: The Role of Dynamic Commissions in Ride-Hailing Markets

This paper examines the role of dynamic commissions for ride-hailing platforms and finds they are a crucial pricing mechanism that directly balances the interests of passengers, drivers, and the platform itself. Dynamic commissions are a part of the ride-hailing platforms’ pricing used to balance supply and demand when trip intensity fluctuates and spatial distribution of demand is uneven. The objective of this paper is to analyze the advantages and limitations of dynamic commissions compared to fixed ones and to understand how dynamic commissions affect the resilience of platform markets and their ability to adapt to evolving market conditions. The methodology employed theoretical modeling of market equilibria in ride-hailing markets and was subjected to empirical verification using publicly available data. This approach provided a comprehensive evaluation of various strategies for managing commissions. The findings demonstrate that flexible commissions enhance platform adaptability to market fluctuations, reduce matching failures, increase driver earnings, and ultimately improve quality of service for passengers. Conversely, fixed commissions constrain a platform’s ability to maintain market equilibrium and result in decreased profitability, deterioration of service, and reduction in social benefit from it. These findings have significant implications for regulatory frameworks governing digital platforms in passenger transportation markets. The study underscores the necessity of adopting a hybrid approach to commission management that accommodates the interests of all stakeholders and promotes sustainable development within platform markets.