Network Flows

We explore spatial price discrimination in the context of a ride-sharing platform that serves a network of locations. Drivers decide whether and where to provide service so as to maximize their expected earnings. We characterize the platform’s optimal pricing policy in an intuitive way using a set of dual variables capturing the value of a driver in a given location. Our findings also highlight the impact of the demand pattern on the platform’s prices, profits, and the induced consumer surplus, i.e., we establish that profits and consumer surplus at equilibrium are increase monotonically with the balancedness of the demand pattern across the network’s locations.