Pricing in Ride-hailing Platforms with Strategic Drivers

Abstract:

In this work, we study optimal pricing in a two-sided marketplace with strategic drivers who decide when to enter or exit the market and where to work in order to maximize their long-run average utility. The platform sets prices anticipating these strategic responses and seeks to maximize revenue subject to the induced driver behavior.

To address this problem, we first develop a fluid model that characterizes equilibrium flow rates and drivers’ strategic decisions. We show that drivers’ equilibrium strategies admit a tractable structure: participation and relocation decisions depend on local congestion and demand conditions, as well as a network-wide highest utility for drivers that govern whether drivers are willing to stay, relocate, or exit. Leveraging this structure, we formulate an optimization problem that jointly determines optimal prices, equilibrium flow rates, and the highest attainable utility in the network for drivers.

Using the equilibrium strategy derived from the fluid model, we then construct a corresponding stochastic policy. We show that the revenue achieved under fluid-optimal prices provides a strong approximation to the performance of the stochastic system, and that fluid-optimal prices are near optimal in simulation for large-scale systems.

Bio:

Sha Chen is a PhD candidate at Northwestern University. She received her B.Eng. in Automation from South China University of Technology in 2014 and her M.S. in Control Science and Engineering from Tsinghua University in 2017. Her research interests include pricing, control, and equilibrium analysis in service systems. She has published work in IISE Transactions and IEEE Transactions on Automatic Control. Her paper was selected as a Featured Article in IISE Transactions and received the Best Paper Award in the Supply Chain and Logistics Focus Issue (2025).

Abstract:

Many transportation and logistics problems—such as freight routing, lot sizing, and capacity allocation—are naturally modeled as mixed-integer linear programs (MILPs). These models capture operational realities including discrete decisions, capacity limits, and service constraints, but they can become computationally intractable at scale—especially when model inputs (e.g., demand or travel times) are uncertain. In this talk, we present improvements in cut-based decomposition methods for solving large scale stochastic MILPs. First, we show that integer L-shaped cuts—computationally cheap but often viewed as weak—belong to the family of Lagrangian cuts, which are typically stronger but harder to compute. Second, we address dual degeneracy in cut generation, where multiple optimal dual solutions may produce weak cuts. We propose a normalization approach that selects dual solutions yielding stronger, Pareto-optimal cuts. Finally, we compare normalization with regularization-based alternatives, showing that normalization can recover cuts produced by regularization, while the converse need not hold.

Bio:

Akul Bansal is a Ph.D. student in the Department of Industrial Engineering and Management Sciences at Northwestern. His research interests include mixed-integer, large-scale, and stochastic optimization.

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About Mario Harik

Mario Harik leads the execution of XPO's strategy, including growth investments in customer service excellence and employee satisfaction. Leveraging his previous service as XPO’s chief information officer, Mr. Harik also oversees the expansion of network capacity and proprietary technology that are transforming the company’s operations. Prior to XPO, Mr. Harik held positions as chief information officer and senior vice president of research and development with Oakleaf Waste Management, chief technology officer with Tallan, Inc., and co-founder and chief architect of web and voice applications with G3 Analyst. He holds a master’s degree in engineering, information technology from Massachusetts Institute of Technology, and a degree in engineering, computer and communications from the American University of Beirut in Lebanon. Mr. Harik also serves as chairman of XPO's board of directors, and is on the board of directors of QXO, Inc.

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