Dynamic Pricing Provides Robust Equilibria in Stochastic Ridesharing Networks

Abstract

Using prices induced by dual variables of a centralized optimization problem induces welfare-optimal equilibria among strategic drivers. We reveal a stark deficiency of such static pricing algorithms: it is possible for them to induce additional equilibria with arbitrarily low social welfare. Moreover, small perturbations to the marketplace, such as those caused by idiosyncratic randomness or model misspecification, can cause the welfare-optimal equilibrium to be Pareto-dominated (in terms of driver utility) by suboptimal equilibria. We show that dynamic pricing solves this problem. We describe a dynamic pricing algorithm that resolves the centralized optimization problem in each time period and show that it satisfies a new equilibrium robustness property, which guarantees that every induced (approximate) equilibrium is (approximately) welfare optimal. We also propose a novel two-level model of ridesharing networks with strategic drivers and spatiotemporal dynamics that lets us retain macroscopic uncertainty, such as correlated shocks caused by weather or other public events, when analyzing a large market limit in which idiosyncratic sources of uncertainty vanish. Funding: J. M. Cashore was supported by an NSERC PGS D Fellowship. P. Frazier was supported by AFOSR [Grant FA9550-19-1-0283]. É. Tardos was supported by AFOSR [Grant FA9550-19-1-0183] and [NSF Grants CCF-1408673 and CCF-1563714]. Supplemental Material: The online companion is available at https://doi.org/10.1287/moor.2022.0163 .