Towards a microeconomic theory of For-Hire Services

Abstract

For-hire services have emerged as promising solutions to meet mobility demand in customized ways. Yet, they still have to achieve profitability: this requires developing the service quality to achieve attractiveness to potential users. Among quality factors, the availability in time of space of modal resources such as vehicles and parking slots is prominent. It follows that models targeted to aid decision-making in the planning and management of for-hire services have to deal with availability as an endogenous property that varies over time and space and depends on the real-time disaggregate conditions of resource occupancy and trip demand.
This paper brings about a microeconomic model of supply and demand for a for-hire service in which availability is represented explicitly. The specific function is formulated under a particular form related to a stylized urban area. After providing the model formulation, which involves probabilistic assumptions and calculus, we use it to investigate the issues of demand-supply equilibrium, service profitability and business model optimization.