SSRN Id3851162

Balancing Supply with Demand in Ride-hailing
Platforms: An Operational Approach

Qin Zhou, Jingqi Wang, Jinzhao Du
Faculty of Business and Economics, The University of Hong Kong, {qin.zhou17, jingqi, jinzhao.du}@hku.hk
Ride-hailing platforms such as Uber and Didi are concerned about supply-demand imbalance, as during
peak periods, demand from passengers far exceeds supply from drivers, whereas during off-peak periods, the
supply of drivers is plenty but the passenger demand can be weak. Although surge pricing can theoretically
solve the issue, it is heavily criticized for exploiting passengers unfairly and hurting drivers’ rating scores. We
propose two novel operational schemes for shifting the supply during off-peak periods to meet the demand
during peak periods. Specifically, under the qualification scheme, only drivers who work up to a peak-period
target are eligible to serve off-peak demand, and under the prioritization scheme, drivers who work up to
a peak-period target are given priority to serve off-peak passengers. Building on a model that captures the
supply-demand imbalance and allows drivers’ strategic work time allocation, we show that both schemes
increase the transaction volume. In addition, if adopting an open system under which part-time drivers can
provide service, a platform prefers the prioritization scheme. In contrast, for platforms that only allow full-
time drivers to provide service, the qualification scheme is more desirable. We further endogenize a platform’s
decision on system adoption and show that the combination of an open system and a prioritization scheme is
the most effective in solving the supply-demand imbalance. We also consider a varying commission rate policy
in which the platform can adopt a lower commission rate during peak periods. Under certain conditions,
the performance of operational incentive schemes outperforms the policy that involves the platform lowering
the peak-period commission rate. Our results have general implications for on-demand platforms (e.g., food
delivery platforms and freelance platforms) in resolving the challenge of supply-demand mismatch.
Key words : Ride-hailing Platform, Supply-demand mismatch, Incentive scheme, Demand uncertainty
1. Introduction
On-demand platforms, such as Uber and Lyft, connect on-call workers to consumers who need
services. A distinguishing feature of these two-sided markets is that the service providers, com-
monly known as gig workers, are typically independent contractors rather than the platform’s
formal employees, and have great flexibility in choosing their work amount and schedule. As service
providers’ choices of when and how much to provide service do not always agree with the platform’s
best interests, significant disparity between service supply and demand usually occurs and brings
great challenges to platforms. For example, Didi, the Chinese riding-hailing giant, constantly faces
labor shortages during weekday mornings. In 2019, the unfulfilled ride demand accounted for one
fifth of the total demand on Didi (Shen 2019). One strategy to ease the supply-demand imbalance
Electronic copy available at: https://ssrn.com/abstract=3851162

Zhou, Wang, and Du: Balancing Supply with Demand in Ride-Hailing Platforms
2 Article submitted to ; manuscript no.
is surge pricing, which refers to the practice of raising the price to attract more drivers during
particular hours when there is increased demand for rides. However, since its first adoption by
Uber, surge pricing has drawn a large amount of criticism. Passengers feel exploited and believe
the practice is unfair and sometimes unethical (Weiner 2014, Harford 2019). Even drivers can be
hurt by surge pricing. Using field data from one ride-hailing platform in China, a recent study by
Wei et al. (2019) shows that during the surge pricing period, the likelihood of drivers receiving
complaints increases by a factor as high as 1.33. Thus, the scope of using surge pricing is usually
limited. Even when surge pricing is in use, platforms typically need to set price caps for reasons such
as regulation (Lien 2018), which further undermines the effectiveness of surge pricing in balancing
supply and demand.
In this paper, we depart from the traditional approaches, which focus on managing demand by
varying price, and propose two novel operational schemes based on supply shifting. We study their
effectiveness in solving the supply-demand imbalance and influence on platform profitability and
users’ welfare. To focus on the idea, throughout the paper we use the ride-hailing market as the
context, and “drivers” and “passengers” refer to service providers and consumers, but our results
can be extended to other two-sided on-demand service industries (e.g., food delivery platforms and
freelance platforms). Although platforms are mostly concerned about the time periods, referred to
as peak periods, when the increase in demand causes a shortage of service supply, we also observe
time periods, referred to as off-peak periods, when service supply exceeds demand (Yang et al.
2020), such as early morning and evening. The idea of the two schemes, namely the qualification
scheme and the prioritization scheme, is to shift service supply from off-peak periods to peak
periods without changing the transaction price. Specifically, the platform sets a target level of
service for the peak periods. Under the qualification scheme, during off-peak periods, the platform
assigns riding requests only to drivers who have provided service up to the target amount during
peak periods. Thus, drivers who have provided less service during peak periods are not qualified to
work during off-peak periods. Under the prioritization scheme, the platform first allocates riding
requests from off-peak periods to drivers who have provided the target amount during peak periods,
and then allocates the remaining requests to other drivers. Therefore, drivers who worked to the
target amount during peak periods are given priority to work during off-peak periods. We show
that both schemes can mitigate the imbalance between supply and demand.
For the purpose of this research, it is essential to understand the two causes of supply shortage
during peak periods. The first cause lies in the composition of the service supply, as a significant
proportion of service providers in gig economies are part-time workers. For example, the majority
of Uber drivers work fewer than 12 hours a week (Chen et al. 2019), and half of Didi drivers work
fewer than 2 hours a day (Liao 2019) as they have other primary jobs. This leads to supply shortage

Article submitted to ; manuscript no. 3
during peak periods when part-time drivers typically work at their primary jobs, while service
requests can only be fulfilled by full-time drivers. The second cause of the supply shortage lies in
the full-time drivers’ misallocation of their service provision across peak and off-peak periods. To
see this, note that the working conditions during peak periods are often more severe and bring
additional costs to service providers. Evans et al. (2002) find that drivers experience a higher level
of stress due to the the traffic congestion during rush hours. Farber (2015) shows that on a rainy
day, despite a surge in demand, the number of cabs in New York City drops about 7.1 percent,
which reflects the disutility from working during peak periods. As independent contractors, ride-
hailing drivers have flexibility in choosing when to work. Fielbaum and Tirachini (2020) find that
the flexibility of choosing when to work is the most appreciated attribute for drivers taking this
job for ride-hailing platforms. Interviews of 64 Didi drivers in China show that most drivers prefer
providing service in the platform partly due to the flexible working hours (Mukhopadhyay and
Chatwin 2020). In practice, most on-demand platforms promise service provider work flexibility,
including Didi and Uber.1 Thus, although full time drivers can work at peak periods, they may
reduce their service amount, which further exacerbates the supply shortage during peak periods.
Our model captures these two causes and examines how qualification and prioritization schemes
can shift service supply given the fixed transaction price.
We study the supply-shifting schemes under two supply systems that on-demand platforms
typically use. Some platforms, such as Uber and Lyft, adopt an open system, which allows both
full-time and part-time workers to provide service. Other platforms, however, due to their concerns
about the quality and the security of service from part-time workers, only allow full-time workers
to provide service. We call this a closed system. For example, Caocao Chuxing, a new entrant to
China’s ride-hailing market, imposes stricter control over its drivers, including service training and
work amount requirements, which effectively exclude part-time drivers from joining the platform
(Tang 2018, Goh and Shirouzu 2018). Since January 2019, Didi started to transit from an open
system to a closed system through implementing double licensing, a policy requesting both drivers
and their cars to be licensed for providing Didi’s service. As registering a privately owned car
for commercial use is associated with great costs in China (Liao 2019, Nonninger 2019), double
licensing essentially excludes part-time drivers from service supply. Our analysis shows that the
system a platform adopts is critical in its choice of the optimal scheme.
We start with a benchmark model in which full-time drivers freely allocate their total service
amount across peak and off-peak periods, under the assumption that working during peak periods
1
Ride-hailing platforms: didiglobal.com/about-didi/about-us; uber.com/us/en/u/flexibility/.
Grocery shopping service: shoppers.instacart.com/; hk.pickupp.io/en/.
Food delivery service: deliveroo.hk/en/apply.La; rider.foodpanda.hk/homepage/en/. All accessed on May 4, 2021.

incurs an increasing marginal cost. When allocating the service amount, a full-time driver balances
the higher chance of receiving a ride request and the incremental cost of working during the peak
period. We find that full-time drivers’ optimal service allocation does not align with the platform’s
best interests, as it does not maximize the platform’s total transaction volume. To understand how
the two proposed schemes can alleviate this issue, we first study the context of a closed system, that
is, one in which part-time drivers are excluded from the labor supply. For both schemes, we find
that when the platform optimally sets the peak-period target service amount, all full-time drivers
join the scheme. Due to the increasing marginal cost of working during peak-periods, it is more
efficient for the platform to use a service target that can engage all drivers, rather than setting a
higher target that only engages some of the drivers. As both schemes increase the total transaction
volume, induce all full-time drivers to work up to the target amount, and do not involve any part-
time drivers (in a closed system), it might seem that the platform would be indifferent between
adopting either scheme. However, our analysis suggests that the qualification scheme is preferred
by the platform. To understand the rationale, notice that if a full-time driver does not work to the
peak-period target amount, the driver cannot provide service during off-peak periods under the
qualification scheme. However, the driver can still fulfill demand requests under a prioritization
scheme (although with a lower priority). This difference enables the platform to set a higher peak-
period target amount under the qualification scheme, which shifts supply from the off-peak period
to the peak period to a higher extent.
We then turn the focus to an open system in which large numbers of part-time workers are
allowed to provide service during the off-peak period. In this context, the service supply shortage
is less severe compared with that in a closed system, as full-time drivers will allocate more of their
service time to the peak period to avoid intense competition with part-time drivers during the off-
peak period. Although we find that the platform still chooses an optimal work target that involves
all full-time drivers in both schemes, the platform will optimally adopt the prioritization scheme,
which is in direct contrast to that in a closed system. To understand this, note that under the
prioritization scheme, although full-time drivers have priority in serving demand during the off-
peak period, the residual demand is still absorbed by part-time drivers. However, the qualification
scheme inherently excludes part-time drivers (as they are not able to work during the peak period to
meet the peak-period service target), and this results in a lower total transaction volume compared
with that under a prioritization scheme.
In an extension of the main model, we study an alternative price-based mechanism that the
platform can use to shift supply. Specifically, the platform may adopt two different commission
rates, one for the peak period and the other for the off-peak period, to shift service supply across

the two periods. We demonstrate that under certain conditions, the proposed operational incentive
schemes outperform such a varying commission policy in increasing the platform’s profit.
The remainder of the paper proceeds as follows. Section 2 reviews the related literature. Section 3
sets up the model. Sections 4 and 5 study the two schemes in a closed system and an open system,
respectively. Section 6 extends the model by studying the possibility of varying commission rates
across periods. Section 7 concludes the study. All proofs are relegated to the Appendix.
2. Literature Review
The recent development of on-demand service platforms has drawn significant attention in
academia. A growing body of literature has investigated various aspects of on-demand service
platforms, especially operational issues on ride-hailing platforms. Examples of such issues include
dynamic pricing and capacity management (Gurvich et al. 2019, Cachon et al. 2017, Guda and
Subramanian 2017, Taylor 2018, Bai et al. 2019, Yang et al. 2020), matching demand with supply
(Hu and Zhou 2017, 2021, Banerjee et al. 2016, Besbes et al. 2021, Bimpikis et al. 2019, Akbar-
pour et al. 2020), and labor welfare, government regulation, and gender-based issues (Chen et al.
2020, Benjaafar et al. 2021, 2020, Yu et al. 2020, Tang et al. 2021). We refer interested readers to
Narasimhan et al. (2018) and Benjaafar and Hu (2020) for reviews of the relevant literature.
Self-scheduling capacity and strategic behaviors of both sides impose new challenges to on-
demand platforms in capacity management and service provision. Several researchers have recently
studied how platforms can adjust service prices and payments to manage capacity efficiently and
facilitate transactions. Gurvich et al. (2019) study self-scheduling capacity management by employ-
ing a newsvendor setting in which the platform chooses the number of agents (who can freely choose
whether or not to work in each period) to recruit, the compensation offered to agents who work in
a period, and a cap on the number of active agents in that period. They find that self-scheduling
workers may hurt the platform and customers, and the platform can mitigate the supply shortage
during peak periods by increasing the pool size of agents, to drive down the compensation level.
Cachon et al. (2017) explore various contracts to maximize the platform’s profit by taking into
account service providers’ long-term entry decisions (to join the platform or not) in Period 1 and
short-term participation decisions (to work or not) in Period 2. They demonstrate that a dynamic
pricing contract provides the platform with sufficient benefits relative to a fixed contract, and
all other stakeholders (e.g., drivers, passengers) can be better off with surge pricing during peak
periods. Both Taylor (2018) and Bai et al. (2019) study the platform’s optimal price and wage deci-
sions when serving delay-sensitive customers and earning-sensitive service providers. Taylor (2018)
examines how customers’ valuation uncertainty and agents’ opportunity cost uncertainty reverse
the impact of delay sensitivity and agent independence on the platform’s price (and wage) decisions

and expected profit within a queueing setting. Bai et al. (2019) extend Taylor (2018) by further
examining impacts of the demand rate, the service rate, and the pool size of service providers on
the optimal price decisions, and considering a dual-purpose platform that maximizes both its profit
and social welfare. Hu et al. (2021) investigate two types of surge pricing strategies for ride-hailing
platforms by considering the strategic behaviors of both drivers and riders, and they highlight that
drivers are much slower than riders in responding to surge pricing. Some papers investigate how
to efficiently match customers with service providers by accounting for geographic features. Guda
and Subramanian (2017) study the strategic role of surge pricing in controlling worker availability
by accounting for workers’ incentives to move across different locations, and find that surge pricing
even takes effect in zones with excess supply apart from in periods with excess demand, and the
platform may exaggerate customer requests to internalize the competition externality of drivers.
Castillo et al. (2017) describe the “wild goose chase” (WCG) phenomenon caused by scarce capac-
ity so that drivers have to drive far to pick up passengers, and analytically and empirically show
that surge pricing is an effective tool in eliminating the WCG effect. Besbes et al. (2021) investigate
pricing strategies on platforms that connect price-sensitive passengers and self-scheduling drivers
in a spatial network. They find that a platform may artificially change the attractiveness of a region
to redistribute drivers to more profitable regions for the platform. Bimpikis et al. (2019) study
spatial price discrimination for platforms that serve price-sensitive riders who have heterogenous
destination preferences and compensation-sensitive independent drivers. They highlight the impact
of the pattern of demand on pricing decisions, and show that the platform benefits from pricing
rides according to their originating locations when the demand pattern is imbalanced. The afore-
mentioned papers all consider self-scheduling capacity management through dynamically changing
prices and wages, whereas we focus on using non-pricing approaches to better manage capacity
and address the demand-supply mismatch.
Our paper fits in the literature investigating instruments that are unrelated to the price (e.g.,
incentive schemes, non-pricing controls) to address the demand-supply imbalance. Yang and Tang
(2018) introduce a new fare-reward scheme for railway transit that aims to shift commuters’ peak
departures to off-peak periods, which reduces queueing time without undermining the transit
operator’s revenue. However, this scheme may be unacceptable to some commuters because they
bear higher cost of changing their scheduling decisions (departure time and arrive time) to make
use of the reward. By incorporating the heterogeneity in commuters’ scheduling flexibility, Tang
et al. (2019) further propose a hybrid fare scheme combining the fare-reward scheme with a non-
rewarding scheme to shift peak traffic to off-peak periods. Afeche et al. (2018) consider the interplay
of passengers’ admission control and drivers’ re-positioning decisions over a spatial network, and
find that the platform may strategically reject requests originated from low-demand regions even

if there is excess supply, to induce drivers’ repositioning toward high-demand locations. Yang et al.
(2020) build a reward scheme integrated with a constrained surge pricing in which a rider can
choose to pay additional money for the priority to get service during peak periods and utilize
the additional money (as a form of balance in the rider-owned “reward account”) to compensate
the trip fare during off-peak periods. Different from the aforementioned papers that focus on the
demand side, we consider incentive schemes by looking at the supply side. Some papers investigate
strategies driving the participation of flexible service providers. Kabra et al. (2016) empirically
quantify and compare the efficiency of incentives on the total number of trip transactions using data
from a ride-hailing platform, and find that incentives given to drivers are more effective than those
given to passengers. Chen et al. (2020) study the impact of two types of bonus strategies (fixed
bonus strategy and contingent bonus strategy) in addition to the proportional commissions scheme
on platform competition, platform profitability, and social welfare. The study finds that the plat-
form opts for the fixed bonus strategy when supply is thick relative to demand, but it chooses the
contingent bonus strategy when supply is thin relative to demand, but neither strategy enhances
social welfare. Chu et al. (2018) highlight the double-edged-sword effect of information provision
and propose a routing policy to moderate drivers’ cherry-picking strategic behaviors. Different from
these papers, which seek monetary incentives or information provision controls to increase drivers’
participation, our study investigates how possessing work qualification/prioritization opportunities
during off-peak periods motivates drivers to increase supply during peak periods.
To the best of our knowledge, among the literature that addresses the demand-supply mismatch
problem on ride-hailing platforms, our paper is the first to focus on shifting self-scheduling capacity
from off-peak periods to peak periods through non-pricing incentive schemes. Our paper makes
the unique contribution of characterizing the optimal incentive scheme in the presence of different
types of service providers.
3. Model Setup
Consider an on-demand platform that assigns passenger requests to available drivers. We use p to
denote the transaction price a passenger pays for each unit of service time,2 of which the platform
pays proportion δ to the driver and retains the remaining 1 − δ as its own revenue. To focus on how a
platform can shift supply through the operational approach rather than adjusting price, throughout
the paper we assume that the transaction price p is exogenous and fixed. This assumption is in
line with the literature that studies non-pricing issues on two-sided platforms (Afeche et al. 2018,
Feng et al. 2020), and with practices when the transaction price is largely regulated and cannot be
2
The practical pricing menu typically depends on various factors, such as the travel distance, waiting time, baggage
fee, etc. To keep the model focused and tractable, we abstract the price to be proportional to the service time.

freely manipulated by the platform or drivers. In Section 6, we relax this assumption by allowing
the platform to vary the commission rate δ between peak and off-peak periods, and characterize
the conditions under which the operational approaches are still optimally adopted.
3.1. Passengers
Passengers send their service requests to the platform. The demand for service is usually highly
heterogeneous over different periods. During rush hours, which we refer to as the peak periods, the
service demand far exceeds the supply capacity from drivers, and thus the platform suffers from
supply shortage. There are also periods when supply is greater than demand (e.g., early morning,
late night, etc.), which we refer to as the off-peak periods. To capture this time-heterogeneity in
the most parsimonious way, we assume that in the peak period the service demand is infinite. In
contrast, the service demand during the off-peak period, although being random with unpredictable
volatility, is typically finite. To model the off-peak demand, we use a linear function, D() = D0 −
p + , where is a random factor with zero mean and captures the off-peak demand randomness.
We assume that follows a distribution F and has a support on [−s, s]. As both D0 and p are
exogenous, we define L ≡ D0 − p to represent the expected level of demand during the off-peak
period. Letting n denote the total number of full-time drivers, we further impose the assumption
that s ∈ (0, min{n − L, L}). Specifically, the constraint s < n − L implies D() = L + < L + n − L =
n, reflecting that during the off-peak period labor supply can fall short of ride demand; The
constraint s < L ensures that the realized off-peak damand D() is always positive. The distribution
F is assumed to be common knowledge. In addition, to reflect the feature of the off-peak period
that demand is usually lower than supply, we assume that the intercept D0 is no higher than the
total capacity n from full-time drivers.
3.2. Drivers
In practice, some service providers treat the on-demand service as their full-time job and can work
during both peak and off-peak periods. These service providers have the flexibility/freedom to
decide when to work. For example, during peak hours, some drivers may choose not to take orders
because of the congestion. Certain drivers may choose to work more during off-peak periods to
avoid traffic congestion (Mao et al. 2021). In addition to full-time drivers, some platforms also
involve service providers with other primary jobs who can only work during off-peak periods. In
our model, we refer to drivers with the freedom to shift working time between peak and off-peak
periods as full-time drivers; while those who can only work during off-peak hours are referred to
as part-time drivers.3
3
It is possible that some service providers can only work during the peak period. The inclusion of these service
providers will not affect our results, as the goal of our proposed schemes is to shift supply from off-peak to peak
period. To maintain simplicity, we do not specifically model this type of service provider.

Recall that the total number of full-time drivers is denoted as n. We normalize each full-time
driver’s daily working hours to be 1, and allow them to freely allocate their total work time across
the two periods. We use α ∈ [0, 1] and 1 − α to denote the proportions of work time that a full-time
driver allocates to the peak and the off-peak periods.4 The total size of part-time drivers is set to
be infinity. This is to capture the service oversupply during the off-peak period, which motivates
the adoption of the proposed schemes aiming to shift service supply from the off-peak period to
the peak period.
As discussed in Section 1 and evidenced by many other studies (Hennessy and Wiesenthal 1999,
Morris and Hirsch 2016, Huang et al. 2018), most drivers incur additional costs, such as psycholog-
ical discomfort, high stress levels, and fatigue, when working during the congested peak periods.
These additional costs are important reasons why full-time drivers are unwilling to work during
the peak period despite the high demand. To reflect this, we normalize the cost of working during
the off-peak period to zero, and we assume an additional congestion cost of working during the
peak period to be 12 k · α2 . This quadratic cost function captures the increasing marginal cost with
respect to work time during the peak period, in which k measures the level of the additional costs.
Note that it is the individual drivers, instead of the platform, who bear such additional costs. As
a result, the drivers’ optimal working time allocation decision does not align with the platform’s
best interests.
In the remainder of the paper, we focus on the interesting case in which the congestion cost is
npδ
significant enough (k > n−L+s
) such that drivers are highly discouraged from working during the
peak period. Thus, solving the supply-demand intertemporal mismatch is crucial.5
3.3. Platform, Incentive Schemes, and System Openness

The platform receives ride-hailing requests from passengers, assigns them to available drivers, and
keeps 1 − δ of the transaction price that passengers pay. We start with a benchmark model in which
the platform randomly assigns ride-hailing requests to all available drivers and demonstrate the
supply-demand imbalance. We then analyze two incentive schemes, namely the qualification scheme
and the prioritization scheme, with the goal of shifting service supply from the off-peak period to
the peak period to solve the supply-demand imbalance. Specifically, the platform publicly sets a
peak-period work target α0 . Under the qualification scheme, the platform assigns off-peak period
requests only to drivers who have fulfilled the peak-period target amount; under the prioritization
4
We have analyzed the case where there is a cap on how much time a service provider can allocate to the peak period
and shown that our main results remain valid. Please see Appendix B for detailed analysis.
5 npδ
When k ≤ n−L+s , the congestion cost is insignificant and full-time drivers’ capacity can be fully utilized in a closed
system even without any incentive scheme.

scheme, the platform first assigns off-peak requests to drivers who have fulfilled the peak-period
target, and then assigns the residual requests, if any, to other drivers.
The openness to service supply varies across platforms. Some platforms allow both full-time and
part-time drivers to provide service, which we call the adoption of an open system. Other platforms,
for reasons such as quality control or security concerns, only allow full-time drivers to provide
service. We refer to such practice as the adoption of a closed system. We study the performance
of the two incentive schemes first in a closed system, and then we examine an open system to see
how the optimal choice of incentive schemes changes with the addition of part-time drivers. Table
1 summarizes the notation in the model.
Table 1 Summary of Notation

Notation Explanation
Exogenous parameters p Price rate, p ∈ (0, D0 )
c Fixed per unit driving cost, c ∈ (0, p)
δ Proportion of revenue the platform keeps, δ ∈ [ pc , 1)
k Congestion cost coefficient, k ∈ (pδ − c, +∞)
n Pool size of full-time drivers, n > 0
D0 Intercept of the off-peak demand function, D0 ∈ (0, n]
L Expected demand during off-peak periods, L ≡ D0 − p
Uncertain component of off-peak demand, ∈ [−s, s], s ∈ (0, min{n − L, L})
Platform’s decision α0 Target workload during peak hours, α0 ∈ (0, 1)
Full-time driver’s decision α Workload during peak hours, α ∈ (0, 1)
Endogenous parameter θ Proportion of qualified/prioritized (full-time) drivers
Superscripts B Benchmark
Q Qualification scheme
P Prioritization scheme
D Different commission rates
Subscripts q/uq Qualified/unqualified (full-time) drivers

p/up Prioritized/unprioritized full-time drivers
C Closed system
O Open system
4. Closed System
A platform that adopts a closed system allows only full-time drivers to provide services. For suc-
cinctness, we use drivers in this section to refer to full-time drivers unless otherwise noted. We start
by examining a benchmark case in which no incentive scheme is implemented. Then, we show the
impact of qualification and prioritization schemes on drivers’ work time allocation, welfare, and
the platform’s profit.

4.1. Benchmark
We first derive the driver’s equilibrium work time allocation when no incentive scheme is imple-
mented. Recall that α is the proportion of time that a full-time driver allocates to the peak period.
During the peak period, as demand exceeds supply, a driver always has orders and can earn p · δ
income for each unit of time. However, the driver also incurs the congestion cost 21 k · α2 . Therefore,
the driver’s net utility from working during the peak period is pδ · α − 12 k · α2 . We next consider the
off-peak period. We use α̂ to denote all drivers’ average equilibrium amount of work time allocated
to the peak period. Then, the total service supply during the off-peak period is n(1 − α̂). Each
individual driver can serve a passenger for sure if D() ≥ n(1 − α̂), but each driver can only serve a
D()
passenger with probability n(1−α̂)
if D() < n(1 − α̂). Therefore, a driver’s net utility from working
D()
during the off-peak period is min{1, n(1−α̂)
} · pδ · (1 − α). Summing up a driver’s utility from both
periods, we obtain the driver’s utility function for a given realized :
D() 1
UCB (α, ) = min{1, } · pδ · (1 − α) + pδ · α − k · α2 . (1)
n(1 − α̂) 2
Superscript B and subscript C refer to the benchmark case and the closed system case, respectively.
Rs
Each driver chooses α to maximize the expected utility UCB (α) = −s UCB (α, )dF (), that is,
Z n(1−α̂)−L Z s
D() 1
max UCB (α) = max dF () + dF () · pδ · (1 − α) + pδ · α − k · α2 .
α α −s n(1 − α̂) n(1−α̂)−L 2
(2)
All full-time drivers are homogeneous, so they have the same optimal α, which is the same as the
average portion of work time during peak periods α̂.6 Lemma 1 characterizes a full-time driver’s
optimal choice of α, the resulting utility, and the platform’s expected total matching volume.
Lemma 1 (Closed System: Benchmark). In a closed system, when no incentive scheme is

implemented, the equilibrium is characterized as follows:
B
• Each full-time driver’s optimal choice of α, denoted by αC , is given as
( b
α, if k ≤ k1 ,
B
αC = k+pδ−√(k−pδ)2 +4 kL pδ
n
2k
, if k > k1 ,
R n(1−αb )−L
pδ F ()d pδs
where αb solves the implicit function αb = k
· −s
n(1−αb )
and k1 = (L+s)(1− L+s
.
n )
• The resulting driver utility is given as
R n(1−αb )−L

F ()d 1 2
(1 − −s
)pδ − √ kαb , if k ≤ k1 ,

UCB = n 2
 −k2 +2 kL 2 2
n pδ+2δkp+δ p +(k−pδ) (k−pδ)2 +4 kL
n pδ
4k
, if k > k1 .
6
In the appendix, we show in Claim 1 that in equilibrium, all drivers’ choices of α are the same.

• The platform’s expected matching volume, denoted by MCB , is given as


n − R n(1−αb )−L F ()d, if k ≤ k1 ,
MCB = −s √
L + n k+pδ− (k−pδ)2 +4 kLn pδ
, if k > k .
2k 1
In allocating the work time, a full-time driver balances two opposing effects. Working during the
off-peak period implies facing more competition and possibly not receiving ride requests. Working
during the peak period implies incurring the additional cost of congestion despite the sufficient
demand. Lemma 1 shows that the expected matching volume is always less than the total capacity
(i.e., MCB < n). This is because drivers allocate more service than the lowest possible realized off-
peak demand, which leads to idleness during the off-peak period. Next, we analyze the two proposed
incentive schemes to study their effectiveness in increasing the matching volume by shifting supply
from the off-peak period to the peak period.
4.2. Qualification Scheme

When adopting the qualification scheme, the platform only allows drivers who work more than
the target service amount during the peak period to provide service during the off-peak period.
First, the platform sets a target service amount α0 for the peak period and announces it to all
drivers. Then each driver allocates the total work time between the peak and off-peak periods. The
platform assigns off-peak ride requests to drivers who worked at least α0 during the peak period.
We use backward induction to solve this model. We first analyze each driver’s choice of work
time allocation given the platform’s choice of α0 , and then solve for the platform’s optimal choice
of α0 . Denote θ (θ ∈ (0, 1]) as the proportion of drivers who are qualified to provide service during
the off-peak period. Note that θ is the collective response by all drivers to the platform’s target
service amount α0 , and is not affected if an individual driver changes his work time allocation.
For each individual driver, the optimal choice of α depends on whether the driver chooses to be
qualified for working during the off-peak period or not.
• If a driver chooses to be unqualified, he can only provide service during the peak period.
By working αuq amount of time during the peak period, an unqualified driver derives a utility
of Uuq (αuq ) = pδ · αuq − 12 k · αuq
2
. Using the first-order condition, we can solve for an unqualified
Q Q pδ Q p2 δ 2
driver’s choice of αuq , denoted by αuq , as αuq = k
. The corresponding driver utility is Uuq = 2k
.
p2 δ 2
We can also view 2k
as (full-time) drivers’ reservation utility, because a driver can always secure
such utility by choosing to be unqualified.
• If a driver chooses to be qualified, he needs to work no less than α0 during the peak period
to be qualified to provide service during the off-peak period. We use αq to represent the driver’s
work time during the peak period. Given the equilibrium average supply decision α̂q of all qualified

drivers, the service supply during the off-peak period becomes nθ(1 − α̂q ). Similar to that in the
benchmark model, a qualified-driver’s utility for a realized is
D() 1
Uq (αq , ) = min{1, } · pδ · (1 − αq ) + pδ · αq − k · αq2 , (3)
nθ(1 − α̂q ) 2
and each qualified driver chooses αq to maximizes the expected utility
Z s
max Uq (α) = max Uq (αq , )dF () , (4)
αq αq −s
s.t. α0 ≤ αq ≤ 1. (5)
The equilibrium conditions require αq = α̂q . Lemma 2 characterizes this equilibrium choice of α̂q ,
which is denoted by αqQ .
Lemma 2. In a closed system, when the platform implements the qualification scheme, qualified
drivers choose αqQ = α0 .
The result shows that qualified drivers will provide the exact required amount of service during
the peak period. If qualified drivers voluntarily serve more than the required amount during the
peak period, the qualification scheme becomes irrelevant.
Anticipating each type of driver’s choice of (αqQ , αuq
Q
), the platform sets the target α0 , which
induces the proportion θ of full-time drivers voluntarily to become qualified drivers and the remain-
ing to become unqualified drivers, to maximize the expected total matching quantity M Q (θ(α0 )).
The matching quantity during the off-peak period equals the larger of riding demand and service
supply, that is, max{D(), nθ(1 − α0 )}, while during the peak-period, it is solely determined by the
Q
service supply, that is, nθα0 + n(1 − θ)αuq . Thus, we have
Z s
Q Q
M (θ(α0 )) = max{D(), nθ(1 − α0 )}dF () + nθα0 + n(1 − θ)αuq . (6)
−s
The platform’s problem can be formulated as
max M Q (θ(α0 )), (7)

α0
Q
s.t. Uuq ≤ Uq (α0 ) with the constraint binding if θ < 1. (8)
Constraint (8) is the incentive compatibility condition, suggesting that in equilibrium, each indi-
vidual driver must be indifferent between being qualified and unqualified if there is a mix of both
types of drivers, and each driver weakly prefers being qualified if all drivers voluntarily choose to
be qualified. Lemma 3 characterizes the equilibrium outcomes under the qualification scheme.
Lemma 3 (Closed System: Qualification Scheme). In a closed system, when the platform
implements the qualification scheme, the equilibrium is characterized as follows:

• The platform’s optimal choice of working target, denoted by α0Q , is given as
L−s

1 q− n ,
 if k ≤ k2 ,
α0Q = α0 , q if k2 < k ≤ k3 , ,
 pδ
+ 2 Ln pδ

k k
, if k > k3 .
q
R n(1−αq0 )−L 2 2 2
where
q
α 0 > pδ
k
and
it solves the implicit
q
function
(1 − 1
n −s
F ()d)pδ − 12 kα0q = p2kδ , k2 =
L−s L−s L 2− L+2s − s +1
pδ n (2− n )+1 pδ n( n ) n
L−s 2 and k 3 = L+s 2
.
( n )
1− ( n )
1−
• Given α0Q , all drivers choose to be qualified for the scheme, that is, θ(α0Q ) = 1. The resulting
driver utility, denoted by UCQ , is given as
(
pδ − 1 (1 − L−s )2 , if k ≤ k2 ,
UCQ = p2 δ 2 2 n
2k
, if k > k2 .
• The platform’s expected matching volume, denoted by MCQ , is given as



 n, if k ≤ k2 ,
Q
 R n(1−αq0 )−L
MC = n − −s q F ()d, if k2 < k ≤ k3 ,

L + n pδ + 2nL pδ ,

if k > k3 .
k k
Lemma 3 shows that in equilibrium the platform maximizes the total matching quantity by
inducing all drivers to participate in the qualification scheme. This result suggests that compared
with setting a high target but only engaging a proportion of drivers in the scheme, the platform can
improve the matching quantity by lowering the target and engaging as many drivers as possible.
To understand the rationale, the increased capacity during the peak period will be fully utilized
due to high demand, whereas the same capacity may be idle during the off-peak period because
of the limited and stochastic demand. In addition to increasing peak matching volume, having all
drivers work a relatively longer time during the peak period also alleviates the competition during
the off-peak period and thus increases capacity utilization.
The equilibrium peak-period target workload depends on congestion coefficient k. When k ≤ k2 ,
the congestion cost is not high relative to the per unit income, so participating in the scheme enables
the driver to obtain a higher utility because the benefits exceed the additional congestion costs
during the peak period. In this case, the platform can set a high target workload (α0Q = 1 − L−s
n
),
which leads the capacity being fully utilized (MCQ = n). When k > k2 , the congestion cost is so high
that the platform must set a lower peak target to ensure that all drivers are willing to participate
in the qualification scheme. The high congestion cost leads to lower target workload and lower
capacity utilization. Therefore, the total matching volume is lower than total capacity.

4.3. Prioritization Scheme

We next study the prioritization scheme. The same as under the qualification scheme, the platform
sets a target service level α0 , and each individual driver determines whether to work up to α0
during the peak period. Drivers who worked less than α0 during the peak period can still provide
service during the off-peak period, but the platform does not prioritize them when assigning riding
requests. In particular, the platform assigns the off-peak period requests first to drivers who worked
up to α0 during the peak-period and only assigns the rest of requests, if any, to the remaining
drivers.
Following similar steps as those used in analyzing the qualification scheme, we first solve each
driver’s work time allocation given a certain target α0 , and then we solve for the platform’s optimal
choice of α0 . Assume that after the platform announces α0 , a proportion θ ∈ (0, 1] of drivers, whom
we call prioritized drivers, choose to fulfill the target service amount during the peak period. We
refer to the remaining drivers as unprioritized drivers. The work allocation of each group of drivers
is derived as follows.
• For an unprioritized driver, we use αup ∈ (0, α0 ) to denote the driver’s work time allocated
during the peak period. The driver thus derives a utility of pδ · αup − 21 k · αup
2
from the peak
period. The driver’s utility from the off-peak period depends on the realization of off-peak demand.
Specifically, if D() − nθ(1 − α̂p ) ≤ 0, which is equivalent to ≤ nθ(1 − α̂p ) − L, all off-peak riding
requests are fulfilled by the prioritized drivers, which implies that an unprioritized driver gets zero
utility. If D() − nθ(1 − α̂p ) > 0, residual demand exists, then each unprioritized driver’s chance
D()−nθ(1−α̂p )
of receiving a riding request is min{1, n(1−θ)(1−α̂up )
}, where α̂up is the average peak supply of all
unprioritized drivers (θ 6= 1) and hence n(1 − θ)(1 − α̂up ) is the total off-peak service capacity
from unprioritized drivers. In this case, the unprioritized driver’s utility from the off-peak period
D()−nθ(1−α̂p )
is min{1, n(1−θ)(1−α̂up )
} · pδ · (1 − αup ). Combining the utility from both periods, we can form an
unprioritized driver’s work time allocation problem as
Z s D() − nθ(1 − α̂p ) 1 2
max Uup (αup ) = max min{1, } · pδ(1 − αup )dF () + pδ · αup − kαup .
αup αup nθ(1−α̂p )−L n(1 − θ)(1 − α̂up ) 2
(9)
P
The solution to this problem, denoted by αup , is determined by the implicit function
R nθ(1−α̂p )+(1−θ)(1−αPup )−L
pδ nθ(1−α̂p )−L
F ()d
P
αup = · , (10)
k n(1 − θ)(1 − αup
P )
the details of which are relegated in the Appendix.

• For a prioritized driver, let αp ∈ [α0 , 1] denote the driver’s work time during the peak period.
The driver’s utility from the peak period thus is pδ · αp − 12 k · αp2 . During the off-peak period, the

D()
prioritized driver’s probability of receiving a ride request is min{1, nθ(1− α̂p )
} where α̂p is the average
D()
peak supply of all prioritized drivers. Thus, the utility from the off-peak period is min{1, nθ(1− α̂p )
}·
pδ · (1 − αp ). Adding up the two parts, we have a prioritized driver’s problem:
Z s D() 1
max Up (αp ) = max min{1, }dF () · pδ · (1 − αp ) + pδ · αp − k · αp2 . (11)
αp αp −s nθ(1 − α̂p ) 2
P ∂Up (αp )
Given αp ≥ α0 > αup , we can show that ∂αp
< 0. Therefore, the equilibrium work time of a
prioritized driver, denoted by αpP , is αpP = α0 , which means that prioritized drivers work just enough
to meet the service target.
Anticipating each group of drivers’ work time allocation (αpP , αup
P
), the platform chooses the
target α0 to maximize the total matching volume M P (θ; α0 ). The total service supply capacities
during peak and off-peak periods are nθαpP + n(1 − θ)αup
P
and nθ(1 − αpP ) + n(1 − θ)(1 − αup
P
),
respectively. Following a similar approach as that used in the analysis of the qualification scheme,
we have
Z s
P
M (θ; α0 ) = max{D(), nθ(1 − αpP ) + n(1 − θ)(1 − αup
P
)}dF () + nθαpP + n(1 − θ)αup
P
, (12)
−s
where αpP = α0 , and αup

P
is determined by (10). The platform’s problem is
max M P (θ; α0 ), (13)

α0
s.t. Uup ≤ Up (αp ) with the constraint binding if θ < 1. (14)
Constraint (14), which is the same as that in the qualification scheme analysis, is the incentive
compatibility condition that ensures that the proportions θ and 1 − θ of drivers self-select to become
prioritized and unprioritized drivers. The equilibrium is characterized in the following Lemma 4.
Lemma 4 (Closed System: Prioritization Scheme). In a closed system, when the platform
implements the prioritization scheme, the equilibrium is characterized as follows:
• The platform’s choice of peak-period work target, denoted by α0P , is given as
L−s

1 p− n ,
 if k ≤ k0 ,
α0P = α0 , q if k0 < k ≤ k3 ,
 pδ
 pδ
k
+ 2 Ln k , if k > k3 .
R n(1−αp )−L 2
where α0p solves the implicit equation (1 − n1 −s 0 F ()d)pδ − 12 kα0p = (1 −
R n(1−αp0 )−L+(1−α∗d )
p
n(1−α )−L
F ()d)pδ − 12 kαd∗ 2 in which αd∗ satisfies αd∗ = pδk
F [n(1 − α0p ) − L + (1 − αd∗ )], and
0
k0 < k2 in which k0 is represented by
 r !
−L2 +2Ls−s2 2(L−s) 2 −2s−s+1
 pδ + n +s
 n2 p
if s ≤ n (n + 1)2 − 2L + L − n2 − n,


L−s 2
,
k0 = (1− n )
 R 1−α∗
d −s
 2pδ −sL−s 2 F ()d
 p
, if s > n (n + 1)2 − 2L + L − n2 − n.

(1− ) −α∗ 2
n d

• Given α0P , all drivers choose to become prioritized, that is, θ(α0P ) = 1. Each driver’s utility is
given as  1
pδ − 2 k(1
 − L−s
n
)2 , if k ≤ k0 ,
p
P n(1−α )−L 2
F ()d)pδ − 12 kα0p ,
R
UC = (1 − n1 −s 0 if k0 < k ≤ k3 ,
 p2 δ 2

2k
, if k > k3 .
• The platform’s expected matching volume, denoted by MCP , is given as


 n, if k ≤ k0 ,
 R n(1−αp0 )−L
MC = n − −s q F ()d, if k0 < k ≤ k3 ,
P


if k > k3 .
k k
Similar to Lemma 3, Lemma 4 shows that in equilibrium the platform chooses a target α0P that
induces all drivers to participate in the prioritization scheme to maximize the matching volume.
The difference lies in the impact of the peak congestion coefficient k on the equilibrium outcomes.
When k ≤ k0 , the congestion cost is relatively insignificant, similar to that in the qualification
L−s
scheme, and the platform is able to set a high target (α0P = 1 − n
) and achieves the highest
matching volume (MCP = n). It is worth nothing that k0 < k2 , which means it is more difficult
to achieve a full capacity utilization under the prioritization scheme than under the qualification
scheme. The reason is as follows. Under the qualification scheme, unqualified drivers have no income
during off-peak periods, whereas under the prioritization scheme, unprioritized drivers are still
allowed to provide service and may generate income during off-peak periods, which makes working
during peak hours less attractive. Therefore, under the prioritization scheme, drivers are willing
L−s
to work up to α0 = 1 − n
during the peak period only if the congestion cost k is low enough.
When k0 < k ≤ k3 , the income relative to congestion is intermediate, and a higher target workload
reduces the utility of drivers participating in the scheme, whereas benefits the unprioritized drivers.
Hence, the platform reduces the target workload (α0p < 1 − L−s
n
) to ensure driver participation.
However, when k > k3 , the peak congestion is so intensive that the platform should set an even
lower peak-period work target so that all drivers will participate in the scheme. In this case, the
capacity provided by prioritized drivers can satisfy all demand during the off-peak period. As a
result, nonparticipating drivers have the same outside option and thus earn reservation utility as
in the qualification scheme. Therefore, the equilibrium outcomes are the same in both incentive
schemes under this condition (k > k3 ).
4.4. Comparisons in a Closed System

With the analysis of all three scenarios, we now focus on the comparison between them to under-
stand how the two incentive schemes affect the total matching volume and drivers’ welfare. Propo-
sition 1 summarizes the findings of the comparison.

Proposition 1. In a closed system, comparing the two incentive schemes, we have the following
results:
• Compared with not using any scheme, using a prioritization scheme improves the platform’s
total matching volume, however, lowers each driver’s welfare.
• Compared with using a prioritization scheme, using a qualification scheme further improves
the matching volume, however, drivers are hurt more.
• The platform sets a higher peak-period work target when using a qualification scheme than
when using a prioritization scheme.
Proposition 1 first shows that using a prioritization scheme improves the platform’s total number
of matches, but it hurts each driver’s welfare. This is because the platform will set a higher peak-
period work target than a driver would voluntarily choose (in the absence of any scheme). As the
service supply can always fulfill passengers’ demand during the peak period, but can be wasted
during the off-peak period if demand is insufficient, the prioritization scheme increases the total
match volume by shifting supply from the off-peak period to the peak period. However, each
individual driver is worse off because of the additional cost caused by the prolonged work time
during the peak period.
As under either scheme, the platform uses a peak-period work target that induces all drivers to
join the scheme, it may seem that the two schemes are equally effective in shifting off-peak supply
to the peak periods. However, we find that a qualification scheme is more effective in improving the
total match volume. This is because the platform is able to set a higher peak-period work target
under the qualification scheme than that under the prioritization scheme. To see this, note that
if a driver does not meet the peak-period target, he can still fulfill passengers’ demand during the
off-peak period under the prioritization scheme, but is excluded from the service supply under the
qualification scheme. As a result, the platform is able to set a higher target under the qualification
scheme, which shifts more service supply from the off-peak period to the peak period and improves
the matching volume to a greater extent. However, drivers are further hurt as a result of the even
longer work time during the peak period. Each driver’s welfare loss can be understood from the
perspective of the drivers’ reservation utility. As under both schemes, the platform chooses the work
target such that each driver is indifferent between joining and not joining the scheme. If not joining
the qualification scheme, a driver derives zero utility from the off-peak period, which results in a
lower reservation utility under the qualification scheme compared to that under the prioritization
scheme. Consequently, the platform’s adoption of the qualification scheme makes each driver even
worse off.

5. Open System
By adopting an open system, a platform allows both full-time and part-time drivers to provide
service. Consistent with the previous sections, we first analyze the benchmark case in which the
platform randomly assigns ride requests to all available drivers, and next study the two incentive
schemes. In the last part of this section, we compare an open system with a closed one and study
the platform’s decision of which one to adopt.
5.1. Benchmark
In an open system, the platform admits many part-time drivers, who provide service during off-
peak periods. With the presence of the huge supply capacity from part-time drivers, a full-time
driver’s chance of serving a passenger during the off-peak period is very small, and his utility
derived from working during the off-peak peiord is zero. Therefore, given α, the proportion of work
time allocated to the peak period, a full-time driver derives utility of
1
UOB = pδ · α − k · α2 . (15)
2
Lemma 5 summarizes a full-time driver’s choice of α, the resulting utility, and the platform’s total
matching volume.
Lemma 5 (Open System: Benchmark). In an open system without any incentive scheme,
the equilibrium outcomes are as follows:
B pδ
• Each full-time driver’s optimal working time during the peak period is αO = k
.
p2 δ 2
• The utility of a full-time driver is UOB = 2k
.
• The platform’s total expected matching quantity is MOB = L + n pδ
k
.
Comparing the matching volume in an open system with that in a closed system, we have the
result in Proposition 2.
Proposition 2. Compared with a closed system, an open system improves the platform’s total
transaction volume. However, full-time drivers are worse off.
An open system improves the number of transactions in two ways. Directly, it expands the service
supply during the off-peak period by involving part-time drivers. Indirectly, it shifts the full-time
drivers’ work time more toward the peak period so that the peak-period matching volume also
increases. However, the full-time drivers are worse off as they have to work more during the peak
period and bear the additional congestion cost.
5.2. Qualification Scheme

Under the qualification scheme, part-time drivers will not be assigned ride requests as they are not
able to serve passengers during the peak period. As a result, under the qualification scheme, the
open system is effectively the same as that in a closed system, whose equilibrium outcomes are
characterized in Lemma 3.

5.3. Prioritization Scheme

Similar to the analysis of a closed system, we first solve each full-time driver’s work time allocation
problem given a certain target α0 ; then, we solve for the platform’s optimal choice of α0 . According
to the rule of the prioritization scheme, prioritized full-time drivers face the same problem as that
in a closed system. In a closed system, all capacities are fully utilized as long as drivers work up to
1 − L−s
n
during the peak period; thus, in equilibrium the platform never sets the peak target larger
than 1 − L−s
n
in either incentive scheme. However, in an open system, all off-peak demand can be
satisfied due to the existence of many part-time drivers. Therefore, the platform makes every effort
in increasing peak supply and having all drivers to attain the target workload during the peak
period, as long as the drivers who participate in the prioritization scheme obtain no less utility
than that when they do not participate. In an open system, full-time drivers without prioritization
have zero chance to receive orders during the off-peak period due to fierce competition, which is
equivalent to the situation unqualified drivers face under the qualification scheme. Thus, working
during peak hours is the only source of income for unprioritized full-time drivers. The competition
induced by including part-time drivers enables the platform to set a high target workload. Following
similar steps as those in a closed system, we have the equilibrium outcomes in an open system with
a prioritization scheme, as stated in Lemma 6.
Lemma 6 (Open System: Prioritization Scheme). In an open system with the prioritiza-
tion scheme, the equilibrium is characterized as follows:
• The platform’s choice of peak-period work target, denoted by α0 PO , is given by
q
pδ pδ
 k (2 − k ), if k ≤ k2 ,


α0 PO = α0q , if k2 < k ≤ k3 ,
 q
 pδ + 2 L pδ , if k > k .

k n k 3
p2 δ 2
• Given α0 PO , all drivers choose to be prioritized, and each driver’s utility is UOP = 2k
.
• The platform’s expected matching volume, denoted by MOP , is given by
 q
pδ


 L + n k
(2 − pδ
k
), if k ≤ k2 ,
q
MOP = L + nα0 , if k2 < k ≤ k3 ,
 q

if k > k3 .
k k
When the congestion coefficient is large (i.e., k > k2 ), the equilibrium outcome is similar to that
under the qualification scheme (Lemma 3). The reason is that, under the prioritization scheme
in an open system, due to the competition from the large volume of part-time drivers, full-time
drivers face the same outside option as that under the qualification scheme by not participating in
the incentive scheme. When the congestion cost is small (i.e., k ≤ k2 ), the two incentive schemes

lead to different outcomes. Under the qualification scheme, the platform can fully utilize all the
capacity from the full-time drivers by setting the peak target α0Q = 1 − L−s
n
and does not increase the
target further. This is because shifting more capacity from the off-peak period to the peak period
will leave insufficient capacity to satisfy off-peak demand. In contrast, in an open system, there is
always sufficient capacity from part-time drivers to satisfy the off-peak demand. Therefore, raising
the target beyond 1 − L−s
n
benefits the platform as long as drivers are still willing to participate in
the prioritization scheme.
5.4. Comparisons in an Open System

Comparing the benchmark and two incentive schemes in an open system, we have Proposition 3.
Proposition 3. The impacts of the two schemes on a platform that uses an open system are
as follows:
• Comparing with the benchmark, when the congestion coefficient is relatively low, i.e., k ≤
k4 , the adoption of qualification scheme reduces the total matching volume; when the congestion
coefficient is high, i.e., k > k4 , using the qualification scheme increases the total matching volume,
where k4 is represented by
(
pδ
√
1−L/n
, if s ≤ n2 − L2 + L − n,
k4 = √
k̃, if s > n2 − L2 + L − n,
R n(1−α̃q )−L
in which k̃ satisfies n − −s 0 F ()d − L − n pδk̃
= 0, and α̃0q solves the implicit equation (1 −
q
R n(1−α̃0 )−L 2 2
1
n −s
F ()d)pδ − 12 k̃ α̃0q2 = p2k̃δ . Full-time drivers’ welfare remains the same when k > k2
and becomes higher when k ≤ k2 . The qualification scheme results in a win-win outcome when
k4 < k ≤ k2 , where k2 is defined in Lemma 3.
• Compared with not using any scheme, using the prioritization scheme improves the platform’s
total matching volume. Full-time drivers’ welfare remains the same.
• Compared with using the qualification scheme, using the prioritization scheme (weakly)
improves the platform’s total matching volume. Full-time drivers’ welfare remains the same when
k > k2 and becomes lower when k ≤ k2 .
In an open system, using the qualification scheme has two opposite effects on the total matching
volume. First, part-time drivers, being unable to work during peak hours, cannot satisfy the qual-
ification requirement and thus cannot work on the platform. Therefore, the qualification scheme
reduces the total supply and thus also the total matching volume during off-peak hours. Second,
using the qualification scheme motivates full-time drivers to allocate more time to peak hours,
which increases the matching volume. When the congestion cost is low, full-time drivers allocate
significant time to peak periods even without any incentive scheme. In such case, the benefit from

shifting capacity from off-peak to peak periods is limited and insufficient to offset the loss due to
refusing part-time drivers. Therefore, using the qualification scheme reduces the total matching
volume when the congestion cost is low. In contrast, when the congestion cost is high enough, the
benefit of demand shifting dominates, and thus using the qualification scheme increases the total
matching volume.
The prioritization scheme, however, allows the platform to shift some capacity by full-time drivers
from the off-peak period to the peak period without losing the large off-peak capacity by part-time
drivers. Using the prioritization scheme increases service supply during peak periods, and it always
satisfies the off-peak demand because of the part-time drivers. Therefore, the platform is better off
opting for the prioritization scheme in an open system.
We next consider the comparison between the qualification scheme and the prioritization scheme.
Recall that the platform opts for the former in a closed system (see Proposition 1). In contrast,
Proposition 3 suggests that the platform should adopt the latter in an open system. There are
two reasons. First, when using the prioritization scheme in a closed system, a full-time driver
generates a positive expected income during the off-peak period even without having the priority
to serve off-peak demand. To ensure that all drivers are willing to achieve the peak-hour service
target, the platform must lower the target when using the prioritization scheme, compared with
that when using the qualification scheme, which then leads to lower supply and matching quantity
during peak hours. In contrast, in an open system, the off-peak market is so competitive due to the
existence of many part-time drivers that it is equally unattractive for a full-time driver under both
the prioritization scheme and the qualification scheme. The fierce competition during the off-peak
period in an open system enables the platform to set an equivalent or higher peak-hour service
target under the prioritization scheme than that under the qualification scheme, depending on
the effective income during the peak period. Second, the qualification scheme essentially excludes
part-time drivers, which may lead to a lower off-peak matching quantity than that under the
prioritization scheme. Therefore, the prioritization scheme outperforms the qualification scheme
in an open system.
From the perspective of a full-time driver, in an open system, due to the existence of many
part-time drivers, the driver obtains the reservation utility in either the benchmark or the prior-
itization scheme. However, full-time drivers can benefit from the qualification scheme when the
peak congestion is not intensive (i.e., k ≤ k2 ). The qualification scheme eliminates the competition
from part-time drivers and gives qualified full-time drivers the opportunity to generate positive
revenue during off-peak periods. Under the qualification scheme, when k > k2 , full-time drivers are
indifferent between participating in the scheme and remaining unqualified; whereas when k ≤ k2 ,
full-time drivers are strictly better off by participating in the scheme. The unqualified full-time

drivers generate the same utility as that when the platform does not use any incentive scheme.
Thus, we have the results of the comparison of full-time drivers’ welfare as stated Proposition 3.
In addition, when k4 < k ≤ k2 , adopting the qualification scheme also benefits the platform, and
thus it leads to a win-win outcome for both the platform and full-time drivers.
Finally, it is worth noting that using the qualification scheme in open and closed systems leads
to the same outcome. Therefore, the platform should invite part-time drivers and at the same time
adopt the prioritization scheme to maximize the total matching quantity.
6. Extension: Different Commission Rates

In the previous sections, we showed that the platform can address the demand-supply mismatch
problem by shifting supply from off-peak to peak hours using the qualification scheme or the
prioritization scheme. We assumed that the platform uses the same commission rate during both
peak and off-peak periods. Alternatively, the platform may consider using a different commission
rate policy. Specifically, the platform may give drivers a lower portion (δ1 ) during off-peak hours
and a higher portion (δ2 , δ2 > δ1 ) during peak hours. Offering different commission rates provides
an incentive for drivers to increase supply during peak hours. Is using different commission rates a
better solution than using the prioritization/qualification scheme? We shall answer this question
in this section.
The platform can only vary the commission rate within a certain range. Drivers must earn enough
to cover their marginal cost of providing service (e.g., gas, time, and vehicle depreciation), which
c
is denoted by c (0 < c < p). This indicates that the platform should pay at least p
to drivers per
c
unit working time and thus she keeps a rate that is no more than 1 − p
as commissions. We next
compare the platform’s profit when using the proposed incentive schemes with that when using
different commission rates.
6.1. Closed System

In Section 4, we demonstrated that it is better for the platform to use the qualification scheme
than the prioritization scheme in a closed system. Hence, we compare the platform’s profit when
using the qualification scheme with that when using different commission rates in a closed system.
6.1.1. Different Commission Rates. Given the average level of supply of all the full-time
drivers α̂, following the same backward induction steps as described in Section 4.1, we have an
individual driver’s expected utility as a function of the driver’s own supply decision α as follows:
1
UCD (α) = (pδ1 − c) · (1 − α) · R1 + (pδ2 − c) · α − k · α2 ,
2
R n(1−α̂)−L
c −s F ()d
where p
≤ δ1 < δ2 < 1, and R1 = 1 − n(1−α̂)
is the probability for the driver to get a passenger
during the off-peak period. Superscript D denotes the case with a different commission rate policy.

Following the same procedure as that in deriving Lemma 1, each driver’s time allocation decision,
D
denoted by αC , is given as
√
k+pδ2 −c− (k−pδ2 +c)2 + 4kL k(1− L+s L

n (pδ1 −c) n )+c+(pδ1 −c) L+s


 2k
, if δ2 < p
,
L+s L
D
αC = αD , k(1− n )+c+(pδ 1 −c) L+s k(1− L−s
n ) (16)
 if p
≤ δ2 < δ1 + p
,
 L−s
 p(δ2 −δ1 ) k(1− n )
k
, if δ2 ≥ δ1 + p
,
R n(1−αD )−L
F ()d
pδ2 −c−(pδ1 −c)(1− −s )
D n(1−αD )
where α = k
.
The platform’s profit function is as follows:
√
k(1− L+s L

k+pδ2 −c− (k−pδ2 +c)2 + 4kL n (pδ1 −c) n )+c+(pδ1 −c) L+s


Lp(1 − δ1 ) + n 2k
p(1 − δ2 ), if δ2 < p
,
D k(1− L+s L

n(1−α )−L n )+c+(pδ1 −c) L+s
 R
(n − nαD − −s F ()d)p(1 − δ1 ) + nαD p(1 − δ2 ), if ≤ δ2

ΠD
C (δ1 , δ2 ) =
p
k(1− L−s
n )



 < δ1 + p
,
k(1− L−s
n )
n(1 − p(δ2k−δ1 ) )p(1 − δ1 ) + n p(δ2k−δ1 ) p(1 − δ2 ),

if δ2 ≥ δ1 + ,

p
(17)
and her problem is to maximize ΠD
C (δ1 , δ2 ) by determining δ1 , δ2 .
6.1.2. Qualification Scheme. Referring to Lemma 3, the platform’s profit (without normal-
izing the c to zero) is

np(1 − δ), q
 if k ≤ pδ−c
pδ
· k2 ,
 n(1−α0 )−L pδ−c pδ−c
Q
R
ΠC = (n − −s q
F ()d)p(1 − δ), if pδ k2 < k ≤ pδ
· k3 ,

(L + n pδ−c + 2nL pδ−c )p(1 − δ), if k > pδ−c · k ,

k k pδ 3
R n(1−αq0 )−L 2 (pδ−c)2

where α0q ≥ pδ−c
k
and it is determined by (1 − n1 −s
F ()d)(pδ − c) − 12 kα0q = 2k
. Com-
paring the platform’s profit when using different commission rates (ΠD
C ) with that when using the
qualification scheme (ΠQ

C ), we obtain the following sufficient conditions under which the qualifica-
tion scheme outperforms different commission rates, as stated in Proposition 4.
Proposition 4 (Closed System: Qualification Scheme versus Different Commission Rates).

In a closed system, using the qualification scheme is better than using different commission rates
when any one of the following conditions is satisfied:
• δ1 < δ < min{δ2 , p(kck3 −k)
3
}, where δ1 , δ2 are two real roots of equation (L + n pδ−c
k
+
q
2nL pδ−c
k
)p(1 − δ) − (p − c)(L + n p−c
4k
) = 0;
2
+4ckL+2cnp−4kLp+4knp−4kps−np2
• ck3
p(k3 −k)
≤ δ < min{ p(kck2 −k)
2
, −nc 4knp−4kps
};
ck2 −nc2 +4ckL+2cnp−4kLp+4knp−np2
• p(k2 −k)
≤δ< 4knp
.
Proposition 4 shows that the platform is better off using the qualification scheme than using
different commission rates as long as the uniform commission rate in the qualification scheme is

properly chosen. The intuition is as follows. Although using a lower commission rate during peak
hours improves supply, the improvement is limited because peak matching quantity is capped at
n p−c
2k
. In contrast, using the qualification scheme can be more effective in improving profits as long
as the commission rate is carefully set.
6.2. Open System

In Section 5, we showed that the platform is better using the prioritization scheme than the
qualification scheme in an open system. Hence, we next compare the platform’s profit of using the
prioritization scheme with that of using different commission rates in an open system.
6.2.1. Different Commission Rates. In an open system, there are sufficient number of part-
time drivers providing services during off-peak hours, and, as a result, the full-time drivers have
little incentive to work during off-peak hours. A full-time driver’s problem then becomes
1
max UOD (α) = (pδ1 − c) · (1 − α) · 0 + (pδ2 − c) · α − k · α2 .
α 2
D pδ2 −c
Solving this optimization problem, we have the optimal peak supply as αO = k
, and the full-
2
(pδ2 −c)
time drivers’ equilibrium utility as UOD = 2k
. Then, the platform’s commission rate decisions
are derived as follows:
pδ2 − c
max ΠD
O (δ1 , δ2 ) = L · p(1 − δ1 ) + n · p(1 − δ2 )
c
p ≤δ1 ≤δ2 <1 k
p+c
Solving this optimization problem, we obtain δ1∗ = c
p
and δ2∗ = 2p
, and the platform’s optimal profit
is ΠD
O = (L + n p−c
4k
)(p − c).
6.2.2. Prioritization Scheme. Similarly, referring to Lemma 6, the platform’s profit (with-
out normalizing c to zero) can be represented by
 q
pδ−c


 (L + n k
(2 − pδ−c
k
))p(1 − δ), if k ≤ pδ−c
pδ
· k2 ,
q
ΠPO = (L + nα0 )p(1 − δ) if pδ−c
pδ
· k2 < k ≤ pδ−c
pδ
· k3 ,
 q
(L + n pδ−c + 2nL pδ−c )p(1 − δ), if k > pδ−c · k .

k k pδ 3
Figure 1 demonstrates the results of the comparison.7 The top (bottom) panel presents the
conditions under which the qualification (prioritization) scheme outperforms different commission
rates in a(n) closed (open) system. One key observation is that the advantage of the qualification
scheme over different commission rates decreases in off-peak demand uncertainty s, but that of the
prioritization scheme over different commission rates remains nearly unchanged.
7
The uncertain component of off-peak demand is assumed to follow a truncated standard normal distribution, and
the density function is (
r−1 φ(), if − s ≤ ≤ s,
f () =
0, otherwise,
where r = Φ(s) − Φ(−s), φ(·) and Φ(·) are the probability density function (pdf) and cumulative density function
(cdf) of the standard normal distribution function.

Figure 1 Conditions under Which Incentive Schemes Outperforms Different Commission Rates (n = 1, D0 =
1, p = 0.4, c = 0.2, L = 0.6. Left subfigure: s = 0.1, Right subfigure: s = 0.3)
(a) Closed System: Qualification Scheme versus Different Commission Rates
(b) Open System: Prioritization Scheme versus Different Commission Rates
7. Conclusions
Motivated by the demand-supply intertemporal mismatch challenge facing on-demand platforms,
we propose two novel incentive schemes to alleviate the mismatch and increase the total matching
volume as well as the platform’s profit. Different from the extant literature that focuses on demand-
side solutions such as various pricing strategies (e.g., surge pricing), this study focuses on the
supply side. We investigate two non-pricing incentive schemes, the qualification scheme and the
prioritization scheme, to encourage service providers to shift supply from off-peak to peak periods
without changing prices. Under the qualification scheme (prioritization scheme), drivers joining
the scheme are rewarded the opportunity (priority) to be matched with demand during off-peak
hours, with the requirement that their work time during peak hours should reach a certain target.
We study the two schemes under a closed system, where only full-time drivers are allowed to
work on the platform, and under an open system, where the platform admits part-time drivers to
increase off-peak capacity. We have the following findings. If the platform operates a closed system,
both incentive schemes increase the platform’s profit, with the qualification scheme performing
better than the prioritization scheme. However, the increase of the platform’s profit is at the cost

of drivers’ lower welfare. If the platform operates an open system with a large pool of part-time
drives who provide service during off-peak hours, using the prioritization scheme is the best option
because it shifts capacity from off-peak to peak periods and at the same time allows part-time
drivers to provide service. Using the qualification scheme in an open system renders the system to a
closed one because part-time drivers cannot meet the service target and thus cannot provide service
on the platform based on the scheme. Interestingly, in an open system, full-time drivers may benefit
from the adoption of the qualification scheme when the platform sets a relatively high target, while
their welfare is invariant to whether or not the prioritization scheme is adopted. We also show that
the proposed incentive scheme can be more effective than different commission rates to address the
intertemporal demand-supply mismatch when the marginal congestion cost exceeds a threshold,
as long as the platform designs the commission rate within a reasonable range. Our results suggest
that to maximize the total matching volume, the platform should use the prioritization scheme
and admit part-time drivers. However, if the platform does not allow part-time drivers to provide
service (i.e., restricted by regulations) and must operate a closed system, then it should use the
qualification scheme.
Our analysis and findings offer an alternative to surge pricing for an on-demand platform to
alleviate the intertemperal demand-supply mismatch. The incentive schemes are based on oper-
ational policies instead of dynamic pricing, which are easier to implement, especially considering
customers’ strong opposition to surge pricing in practice.
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Article submitted to ; manuscript no. A.1
Appendix
A Proof of Propositions
Claim 1. In benchmark scenario in a closed system, in equilibrium all full-time drivers choose
the same supply α during the peak period.
Proof of Claim 1: We prove this claim by contradiction. Suppose there are two groups of drivers
adopting different peak supply strategies, the proportion λ drivers on average work α̂1 (Group 1)
and 1 − λ work α̂2 (Group 2), 0 < λ < 1, α̂1 6= α̂2 . For an individual driver from either group, the
D()
possibility to get a passenger during off-peak is min{1, nλ(1−α̂1 )+n(1−λ)(1−α̂2 )
}. A driver from Group
1 (or 2) works α1 (or α2 ) and his optimization problem is
Z s
D() 1
max U1 (α1 ) = min{1, }dF () · (1 − α1 ) · pδ + α1 · pδ − kα12 , or
−s nλ(1 − α̂1 ) + n(1 − λ)(1 − α̂2 ) 2
Z s
D() 1
max U2 (α2 ) = min{1, }dF () · (1 − α2 ) · pδ + α2 · pδ − kα22 .
−s nλ(1 − α̂1 ) + n(1 − λ)(1 − α̂2 ) 2
Solving first order conditions yields the optimal work decision α1∗ = α2∗ = pδ k
(1 −
Rs D() ∗ ∗
−s
min{1, nλ(1−α̂1 )+n(1−λ)(1−α̂2 ) }dF ()). Note that, α1 = α̂1 and α2 = α̂2 in equilibrium, we thus
reach a contradiction with α1∗ 6= α2∗ given α̂1 6= α̂2 , which implies the non-existence of asymmetric
equilibria. It is not surprising because our game involves identical (full-time) drivers competing for
off-peak work opportunities under identical conditions.
Proof of Lemma 1: In a closed system without incentive schemes, given a realized and the
average peak supply of all drivers (denoted by α̂, 0 < α̂ < 1), a driver’ utility function from both
periods is given by
D() 1
U B (α, ) = min{1, } · pδ · (1 − α) + pδ · α − k · α2 . (A.1)
n(1 − α̂) 2
For ∈ [−s, s] and s ∈ (0, L), each driver’s optimization problem is to maximize his utility function
Z n(1−α̂)−L D() Z s 1
B
U (α) = dF () + dF () · pδ · (1 − α) + pδ · α − k · α2 , (A.2)
−s n(1 − α̂) n(1−α̂)−L 2
which can be simplified into

( L (1 − α) + α)pδ − 12 kα2 if α̂ < 1 − L+s ,
n(1−α̂) n

 R n(1−α̂)−L
F ()d
U B (α) = 1 − (1 − α) −s
pδ − 12 kα2 if 1 − L+s < α̂ ≤ 1 − L−s , (A.3)
 n(1−α̂) n n

pδ − 12 kα2 if α̂ ≥ 1 − L−s .

n
The total matching quantity is represented by

B
M = D()dF () + n(1 − α̂)dF () + nα̂. (A.4)
−s n(1−α̂)−L
We next characterize the equilibrium supply during peak in closed system benchmark. We denote
the case with 1 − L+s
n
< α̂ ≤ 1 − L−s
n
, α̂ < 1 − L+s
n
and α̂ ≥ 1 − L−s
n
as Case 1, Case 2 and Case 3
respectively.

A.2 Article submitted to ; manuscript no.

• Case 1: 1 − L+s n
< α̂ ≤ 1 − L−s
n
. The driver’s utility function is U B
(1) (α) = 1 − (1 −
R n(1−α̂)−L B
F ()d dU(1) (α)
α) −s n(1−α̂) pδ − 12 kα2 . Taking derivative of U(1)
B
(α) with respect to α yields dα
=
R n(1−α̂)−L R n(1−α̂)−L
−s F ()d −s F ()d
pδ n(1−α̂)
− kα. Note that, the first derivative of n(1−α̂)
with respective to α̂ equals
R n(1−α̂)−L
F ()d
−F [n(1−α̂)−L]+ −s n(1−α̂) Rx
1−α̂
. Define W (x) = (x + L)F (x) − −s
F ()d, −s ≤ x ≤ s. Taking the first
∂W (x)
derivative of W (x) with respect to x yields ∂x
= (x + L)f (x), which is positive, meaning W (x)
increases in x, so W (x) ≥ W (−s) = 0. Thus, at x = n(1 − α̂) − L, n(1 − α̂) · F [n(1 − α̂) − L] ≥
R n(1−α̂)−L B R n(1−α̂)−L
R n(1−α̂)−L F ()d dU(1) (α) F ()d
−s −s
−s
F ()d and n(1−α̂)
decreases in α̂. For dα
, with n(1−α̂)
decreases in
B
dU(1) (α)
α̂ and kα increases in α, there should be at most one solution for equation dα
= 0. Note that
B
dU(1) (α)
there must be α̂ = α in equilibrium. Because at α̂ = 1 − L−s
n
, dα
= −k(1 − L−s
n
) < 0, to ensure an
B
dU(1) (α)
equilibrium in this case, there should be dα
> 0 at α̂ = 1 − L+s
n
s
, that is, pδ L+s − k(1 − L+s
n
) > 0,
B R n(1−α̂)−L
pδs dU(1) (α) pδ −s F ()d
i.e., k ≤ (L+s)(1− L+s
. Then, we solve dα
= 0 and obtain α(α̂) = k n(1−α̂)
, the equi-
n ) ∗
R n(1−α(1) )−L
∗ ∗ pδ −s F ()d
librium target (denoted by α(1) ) thus satisfies α(1) = k n(1−α∗ )
. Each driver’s utility is
(1)
∗
R n(1−α(1) )−L
F ()d ∗ 2
R n(1−α∗(1) )−L
B
U(1) = (1 − −s
n
)pδ − 12 kα(1) B
and total matching is M(1) =n− −s F ()d.
L+s B L
• Case 2: α̂ < 1 − n
. In this case, the driver’s utility function is U(2) (α) = ( n(1− α̂)
(1 − α) +
α)pδ − 21 kα2 . Solving F.O.C. yields α(α̂) = pδ L
(1 − n(1− ). Equating α(α̂) = α̂ yields the optimal
√ k α̂)
k+pδ− (k−pδ)2 +4 kL pδ
∗ n ∗
solution α(2) = 2k
(the other solution exceeds 1 thus is omitted). To ensure α(2) to
∗ pδs
be the equilibrium peak supply, there must be α(2) < 1 − L+s
n
, which yields k > (L+s)(1− L+s . Hence,
√ kL
n )
2
k+pδ− (k−pδ) +4 n pδ
pδs ∗
when k > (L+s)(1− L+s ) , the equilibrium peak supply is α(2) = 2k
. Correspondingly,
n
2 kL 2 2
√ kL
B −k +2 n pδ+2δkp+δ p +(k−pδ) (k−pδ)2 +4 n pδ B
each driver’s utility is U(2) = and total matching is M(2) =
√ kL
4k
k+pδ− (k−pδ)2 +4 n pδ
L+ 2k
.
• Case 3: α̂ ≥ 1 − L−s
n
. In this case, to ensure an equilibrium in this case, there is α ≥ 1 − L−s
n
.
B
The driver’s utility function is U(3) (α) = pδ − 21 kα2 , which decreases in α, thus the optimal solution
is binding to 1 − L−s
n
B
. The driver’s utility is thus U(3) = pδ − 12 k(1 − L−s
n
)2 . We can easily show that
pδ
B
U(3) B
< U(1) given k > 1− L−s
, 1 − L−s
n
thus is not the equilibrium.
n
We summarize the results in the following Lemma A.1.
Lemma A.1. In closed system without incentive schemes, the equilibrium peak supply is
( b
α, if k ≤ k1 ,
αCB
= k+pδ−√(k−pδ)2 +4 kL pδ (A.5)
n
2k
, if k > k1 ;
the driver’s utility is

R n(1−αb )−L

F ()d 1 2
(1 − −s
)pδ − √ kαb , if k ≤ k1 ,

UCB = n 2 (A.6)
 −k2 +2 kL 2 2
n pδ
4k
, if k > k1 ;

and the total matching quantity is


n − R n(1−αb )−L F ()d, if k ≤ k1 ,
B
MC = −s √ (A.7)
L + n k+pδ− (k−pδ)2 +4 kLn pδ
, if k > k1 ,
2k
R n(1−αb )−L
pδ −s F ()d pδs
where αb is determined by αb = k n(1−αb )
and k1 = (L+s)(1− L+s
.
n )

Proof of Lemma 2: In a closed system with qualification scheme, unqualified drivers’ problem is
∗ pδ ∗ p2 δ 2
simple, that is to maximize Uuq (αuq ) = pδ · αuq − 12 kαuq
2
, thus optimally αuq = k
and Uuq = 2k
.
∗ pδ
Then the platform’s decision on target must satisfy α0 > αuq = k
to differentiate two types of
drivers. For qualified drivers, taking the proportion of qualified drivers θ (0 < θ ≤ 1) and the average
peak supply of all qualified drivers (α̂q ) as given, a qualified-driver’s utility function of his work
decision αq is
D() 1
Uq (αq , ) = min{1, } · pδ · (1 − αq ) + pδ · αq − k · αq2 . (A.8)
nθ(1 − α̂q ) 2
Each qualified-driver’s optimization problem then can be written as
Z nθ(1−α̂q )−L D()
Z s 1
max Uq (αq ) = max dF () + dF () · pδ · (1 − αq ) + pδ · αq − k · αq2 ,
αq ≥α0 αq −s nθ(1 − α̂q ) nθ(1−α̂q )−L 2
(A.9)
in which the objective function can be simplified into
R nθ(1−α̂q )−L
F ()d 1
Uq (αq ) = (F [nθ(1 − α̂q ) − L] − −s ) + (1 − F [nθ(1 − α̂q ) − L]) pδ(1 − αq ) + pδαq − kαq2
nθ(1 − α̂q ) 2
F ()d 1
= 1 − (1 − αq ) −s pδ − kαq 2 .
nθ(1 − α̂q ) 2
(A.10)
Because R nθ(1−α̂q )−L
∂Uq (αq ) −s
F ()d
= · pδ − k · αq , (A.11)
∂αq nθ(1 − α̂q )
−s F ()d ∂Uq (αq ) pδ
where nθ(1−α̂q )
≤ 1 for α̂q ∈ [α0 , 1], thus ∂αq
< 0 for αq ≥ α0 (> k
). The optimal peak
supply of a qualified driver, denoted by αq∗ , is αq∗ = α0 .

Proof of Lemma 3: Through backwards induction, we first characterize the proportion of drivers
that the platform would like to engage in qualification scheme, and then we derive the equilibrium
target α0 . Following the Proof of Lemma 2, αq∗ = α̂q = α0 , a qualified driver’s problem can be
written as

1
pδ − 2 kα
 2
0, if θ(1 − α0 ) ≤ L−s
n
,
1
R θ(1−α0 )−L 1 2 L−s L+s
Uq (θ(α0 )) = (1 − nθ −s F ()d)pδ − 2 kα0 , if n < θ(1 − α0 ) ≤ n
, (A.12)

 L 1
( nθ + α0 )pδ − 2 kα02 , if θ(1 − α0 ) > L+s
n
.

pδ
Anticipating αq∗ = α0 and αuq
∗
= k
, the platform’s optimization problem is given by
Z nθ(1−α0 )−L Z s
pδ
max M Q (θ(α0 )) = D()dF () + nθ(1 − α0 )dF () + nθα0 + n(1 − θ)
α0 −s nθ(1−α0 )−L k
(A.13)
∗
s.t. Uq (θ(α0 )) ≥ Uuq , the constraint is binding if θ < 1. (A.14)
The objective function in (A.13) can be simplified and rewritten as


pδ
nθ + Rn(1 − θ) k ,
 if θ(1 − α0 ) ≤ L−s
n
,
Q nθ(1−α 0 )−L pδ L−s L+s
M (θ(α0 )) = nθ − −s F ()d + n(1 − θ) k , if n < θ(1 − α0 ) ≤ n
, (A.15)
L + nθα0 + n(1 − θ) pδ

, if θ(1 − α0 ) > L+s .

k n
We now show that, subject to (A.14), the platform prefers to induce all drivers to participate in
qualification scheme in all three cases.
Q
L−s ∂M (θ(α0 ))
• If θ(1 − α0 ) ≤ n
, ∂θ
= n(1 − pδ
k
) > 0, so θ∗ = 1;
L−s L+s ∗
• If n
< θ(1 − α0 ) ≤ n
, solving Uq (θ(α0 )) = Uup yields α0 (θ) (the optimized target for
any given θ), which we denote as α00 for notational clarity and it is determined by (1 −
R nθ(1−α00 )−L 2 2 ∂α0
1
nθ −s
F ()d)pδ − 12 kα00 2 = p2kδ . Differentiating α00 with respect to θ yields ∂θ0 =
R nθ(1−α00 )−L
F ()d
F [nθ(1−α0 )−L]− −s
0
pδ(1−α00 ) nθ(1−α00 ) pδ
kθ pδ 0 0
, which is negative given α00 > k
. In this case, M Q (θ) = nθ −
k F [nθ(1−α0 )−L]−α0
R nθ(1−α00 )−L pδ ∂M Q (θ) pδ ∂α00
−s
F ()d + n(1 − θ) k , then ∂θ
= n(1 − k
) − n(1 − α00 − θ ∂θ
)F [nθ(1 − α00 ) − L] =
R nθ(1−α00 )−L
F ()d
F [nθ(1−α0 )−L]− −s
0
pδ pδ nθ(1−α00 )
n(1 − ) − n(1 − α00 )(1 + )F [nθ(1 − α00 ) − L]. From the equation
k k α00 − pδ 0
k F [nθ(1−α0 )−L]
R nθ(1−α00 )−L 2 2 2 R nθ(1−α00 )−L
1
(1 − nθ −s
F ()d)pδ − 12 kα00 = p2kδ , we can derive that n1 −s pδ
F ()d = θ(1 − 2k −
02
R nθ(1−α00 )−L Q
k
2pδ
α 0 ). Replacing 1
n −s
F ()d in ∂M∂θ (θ) yields
0 0 pδ k 02
∂M Q (θ) pδ pδ F [nθ(1 − α0 ) − L](1 − α0 ) − 1 + 2k + 2pδ α0
= n(1 − ) − n(1 − α00 + )F [nθ(1 − α00 ) − L]
∂θ k k α00 − pδ
k
F [nθ(1 − α 0
0 ) − L]
2 2
pδ α0 − pδ + p2kδ2 − 12 α00 2
= n((1 − ) − 0 0 pδ k F [nθ(1 − α00 ) − L])
k α0 − k F [nθ(1 − α00 ) − L]
2 2 2 2
α00 (1 − pδ
k
) − F [nθ(1 − α00 ) − L](α00 − 12 α00 2 − p2kδ2 ) α00 (1 − pδ
k
) − α00 + 12 α00 2 + p2kδ2
=n >n
α00 − pδ
k
F [nθ(1 − α00 ) − L] α00 − pδ
k
F [nθ(1 − α00 ) − L]
1
2
(α00 − pδ
k
)2
=n > 0,
α00 − pδ
k
F [nθ(1 − α00 ) − L]
so that M Q (θ) increases in θ and θ∗ = 1.

q
∗ pδ L pδ
• If θ(1 − α0 ) > L+s
n
, similarly, solving Uq (θ(α0 )) = Uup yields α00 = k
+ 2 nθ k
. M Q (θ) = L +
q Q
n pδ
k
+ 2Lnθ pδ k
, ∂M∂θ (θ) > 0, so θ∗ = 1.

Plugging θ = 1 into (A.12) and (A.15), the driver’s utility function U Q (α0 ) is given by

1
pδ − 2 kα
 2
0, if α0 ≥ 1 − L−s
n
,
n(1−α )−L
U Q (α0 ) = Uq (α0 ) = (1 − n1 −s 0
R 1
F ()d)pδ − 2 kα0 , if 1 − n ≤ α0 < 1 − L−s
2 L+s
n
, (A.16)

 L 1
( n + α0 )pδ − 2 kα02 , if α0 < 1 − L+s
n
;
and total matching quantity becomes


n, R
 if α0 ≥ 1 − L−s
n
,
Q n(1−α0 )−L
M (α0 ) = n − −s L+s
F ()d, if 1 − n ≤ α0 < 1 − L−s
n
, (A.17)
 L+s
L + nα0 , if α0 < 1 − n .

∂M Q (α0 )
We can easily see that ∂α0
≥ 0, indicating the platform prefers setting a target that is as high
as possible.
We next characterize the equilibrium equilibrium outcomes from the following two scenarios,
pδ pδ
1 − L+s
n
> k
(Scenario 1) and 0 < 1 − L+s
n
≤ k
(Scenario 2).
pδ
Scenario 1: 1 − L+s
n
> k
.
• First, the platform prefers letting the target workload to be α0 ≥ 1 − L−s
n
so as to achieve the
highest matching volume n. In this case, U Q (α0 ) = pδ − 21 kα02 . To ensure drivers to not deviate
from participating in the scheme, qualified drivers should be no worse than being unqualified,
2 2
q
α0 thus should satisfy U Q (α0 ) ≥ p2kδ , i.e., α0 ≤ pδ k
(2 − pδk
). In addition, M Q = 1 as long as 1 −
q
L−s L−s
pδ n (2− n )+1
q
L−s pδ pδ
n
≤ k
(2 − k
), i.e., k ≤ 2 . Because increasing α0 does not affect the total
(1− L−s
n )
matching
q
but hurts
drivers, the equilibrium target is thus α0∗ = 1 − L−s n
. Therefore, when k ≤
L−s L−s
pδ n (2− n )+1
2 , the equilibrium target is α0∗ = 1 − L−s n
and U Q = pδ − 21 k(1 − L−s
n
)2 .
(1− L−s
n ) q
L−s L−s
pδ n (2− n )+1
• Second, if k > 2 , the platform will set α0 that satisfies 1 − L+sn
≤ α0 < 1 − L−s
n
.
(1− L−s
n )
R n(1−α )−L
In this case, U Q (α0 ) = (1 − n1 −s 0 F ()d)pδ − 21 kα02 , differentiating which with respect to α0
∂U Q (α0 )
yields ∂α0
= F [n(1 − α0 ) − L]pδ − kα0 < 0, so U Q (α0 ) decreases in α0 and U Q (α0 ) ≤ U Q (α0 =
L+s
1− n
). To ensure the existence q
of equilibrium,

the necessary condition is U Q (α0 = 1 − L+s n
)≥
L 2− L+2s s +1
p2 δ 2
pδ n( n ) n
− 2 2
2k
, which gives us k ≤ L+s 2
. Then, solving U Q (α0 ) ≥ p2kδ yields α0 ≤ α0q where
( n ) q
1−
R n(1−α0 )−L 2 2 2
α0q > pδ k
and is determined byq
(1 − 1
n −s
F ()d)pδ − 1 kα0q = p2kδ . Therefore, the equilibrium
q 2
L−s L−s L 2− L+2s − s +1
q
pδ n (2− n )+1 pδ n( n ) n
∗
target is α0 = α0 when 2 < k ≤ 2 . Each driver’s utility is
q
(1− L−s
n ) (1− L+s
n )
n(1−α )−L 2 R n(1−αq )−L
F ()d)pδ − 12 kα0q and total matching is M Q =n − −s 0
R
U Q = (1 − n1 −s 0 F ()d.

q
L L+2s s
pδ n (2− n )− n +1
• Third, if no equilibrium occurs in the above two cases, i.e., k > 2 , we now
(1− L+s
n )
2 2
analyze the case of α0 < 1 − L+s n
. In this case, U Q (α0 ) = ( Ln + α0 )pδ − 21 kα02 . Solving Uq (α0 ) ≥ p2kδ
q q
yields pδ k
< α 0 ≤ pδ
k
+ 2 L pδ
n k
, so the platform optimally choose α 0 = pδ
k
+ 2 Ln pδ
k
. To ensure the

q
pδ
existence of an equilibrium in this case, it is necessary to have k
+ 2 Ln pδ
k
<1− L+s
n
, i.e., k >
q q
L 2− L+2s − s +1 L 2− L+2s − s +1
pδ n( n ) n pδ n( n )
n
2 . Therefore, when k > 2 , the equilibrium target workload is
(1− L+s 1− L+s
q ) n (
2 2
n ) q
α0 = k + 2 Ln pδ
∗ pδ
k
. Each driver’s utility is U Q = p δ
2k
and total matching is M Q = L + n pδ
k
+ 2nL pδ
k
.
Therefore, we can summarize the equilibrium outcomes in qualification scheme in a closed system
in the following Lemma A.2.
pδ
Lemma A.2. In closed system without qualification scheme, when 1 − L+s
n
> k
, the equilibrium
target is
L−s

1 q− n ,
 if k ≤ k2 ,
α0Q = α0 , q if k2 < k ≤ k3 , (A.18)
 pδ
+ 2 Ln pδ

k k
, if k > k3 ;
the driver’s utility is (

pδ − 1 (1 − L−s )2 , if k ≤ k2 ,
UCQ = p2 δ2 2 n
(A.19)
2k
, if k > k2 ;
the total matching quantity is



 n, if k ≤ k2 ,
 R n(1−αq0 )−L
MCQ = n − −s q F ()d, if k2 < k ≤ k2 , (A.20)


if k > k2 ,
k k
q
L−s
R n(1−αq0 )−L 2 2 pδ n 2− L−s
( n +1 )
2
where α0q is determined by (1 − n 1
−s
F ()d)pδ − 21 kα0q = p δ
2k
, and k2 = 2
q (1− L−s
n )
L 2− L+2s − s +1
pδ n( n ) n
and k3 = 2 .
(1− L+s
n )
pδ
Scenario 2: 1 − L+s
n
≤ k
.
L−s
• First, the platform prefers letting the target workload to be α0 ≥ 1 − n
so as to achieve
the highest matching volume. Through q the same procedure, we obtain the same results as that
L−s L−s
pδ n (2− n )+1
in Scenario 1. That is, when k ≤ 2 , the equilibrium target is α0∗ = 1 − L−s
n
and
(1− L−s
n )
U Q = pδ − 12 k(1 − L−s
n q
)2 .
L−s L−s
pδ n (2− n )+1
• Second, if k > 2 , the platform will set α0 that satisfies pδ k
< α0 < 1 − L−s
n
.
(1− L−s
n )
Q
Recall that ∂U∂α(α 0
0)
= F [n(1 − α0 ) − L]pδ − kα0 < 0, so U Q (α0 ) decreases in α0 and U Q (α0 ) <
R n(1− pδ
k )−L
2 2 2 2
U Q (α0 = pδ
k
). Because U Q
(α0 = pδ
k
) = (1 − 1
n −s
F ()d)pδ − p2kδ > p2kδ and U Q (α0 = 1 −
p2 δ 2 2 2
L−s
n
) = pδ − 12 k(1 − L−s 2
n
) there exists α0q , below which U Q (α0 ) > p2kδ and above which
< 2k
,
2 2 R n(1−αq )−L 2 2 2
U Q (α0 ) < p2kδ , and α0q is determined by (1 − n1 −s 0 F ()d)pδ − 12 kα0q = p2kδ .
We summarize the results in this case in Lemma A.3.

pδ
Lemma A.3. In closed system without qualification scheme, when 1 − L+s
n
≤ k
, the equilibrium
target is (
1 − L−s , if k ≤ k2 ,
α0Q = q
n
(A.21)
α0 , if k > k2 ;
the driver’s utility is (
pδ − 1 (1 − L−s )2 , if k ≤ k2 ,
UCQ = p2 δ 2 2 n
(A.22)
2k
, if k > k2 ;
the total matching quantity is
(
n, if k ≤ k2 ,
MCQ = R n(1−αq0 )−L (A.23)
n− −s
F ()d, if k > k2 ,
R n(1−αq0 )−L 2 p2 δ 2
where α0q is determined by (1 − n1 −s
F ()d)pδ − 21 kα0q = 2k
.
Combine the above two scenarios, we can summarize that the equilibrium outcomes in quali-
L−s

−
 q n ,
1 if k ≤ k2 , (
pδ − 12 (1 − L−s )2 , if k ≤ k2 ,

Q
fication scheme are: α0 = α0 , q if k2 < k ≤ k3 , ; UC =
Q
2 2
n
;
p δ
 pδ
 L pδ 2k
, if k > k2 .
k
+ 2 n k , if k > k3 .

 n, if k ≤ k2 , q
L−s

( 2− L−s )
 q
 R n(1−α )−L pδ n n +1
MCQ = n − −s 0 F ()d, if k2 < k ≤ k3 , , where k2 = 2 , k3 =
 pδ
q
pδ
(1− L−sn )
L + n + 2nL ,

if k > k3 .
q k k
L 2− L+2s − s +1
pδ n( n ) n pδ
2 and k3 only exits when 1 − L+s
n
> k
.
(1− L+s
n )

Proof of Lemma 4: In a closed system with prioritization scheme, following the same procedure
as that in Lemma 2, given the group size of prioritized drivers θ (0 < θ < 1) and the group average
work time α̂p , each prioritized-driver’s optimization problem of his work decision αp is written as
Z nθ(1−α̂p )−L Z s
D() 1
max Up (αp ) = max dF () + dF () pδ(1 − αp ) + pδαp − kαp2 ,
αp ≥α0 αp −s nθ(1 − α̂p ) nθ(1−α̂p )−L 2
(A.24)



pδ − 12 kαp2 , if θ(1 − α̂p ) ≤ L−s
n
,
 R nθ(1−α̂p )−L
F ()d
Up (αp ) = 1 − (1 − αp ) −s nθ(1−α̂p ) pδ − 12 kαp 2 , if L−s
n
< θ(1 − α̂p ) ≤ L+s
n
, (A.25)

( L (1 − α ) + α )pδ − 1 kα2 ,

if θ(1 − α̂p ) > L+s .
nθ(1−α̂p ) p p 2 p n
Because unprioritized drivers can also get orders during off-peak when there is excess demand after
assigning orders for all prioritized drivers, there should be no excess demand during off-peak in
equilibrium. Thus, given the group sizes θ, 1 − θ and the average work time α̂p , α̂up , of respective

prioritized drivers and unprioritized drivers, it is necessary to have nθ(1 − α̂p ) + n(1 − θ)(1 − α̂up ) ≥
L − s. So each unprioritized driver’s optimization problem of his work time αup can be written as
nθ(1−α̂p )+n(1−θ)(1−α̂up )−L
D() − nθ(1 − α̂p )
Z
max Uup (αup ) = dF () · pδ(1 − αup )
αup <α̂p nθ(1−α̂p )−L n(1 − θ)(1 − α̂up )
Z s
+ dF () · pδ(1 − αup )
nθ(1−α̂p )+n(1−θ)(1−α̂up )−L
1 2
+ pδ · αup − k · αup ,
2
 R nθ(1−α̂p )+n(1−θ)(1−α̂up )−L
F ()d
(1 − (1 − αup )



−s
n(1−θ)(1−α̂up )
)pδ − 21 kαup
2
if θ(1 − α̂p ) ≤ L−s
n
,
R nθ(1−α̂p )+n(1−θ)(1−α̂up )−L
Uup (αup ) = nθ(1−α̂p )−L
F ()d
(1 − (1 − αup )
 n(1−θ)(1−α̂up )
)pδ − 21 kαup
2
if L−s
n
< θ(1 − α̂p ) ≤ L+s
n
,

pδ · αup − 12 kαup
2
if θ(1 − α̂p ) > L+s
.

n
(A.26)
Total matching is represented by
Z nθ(1−α̂p )+n(1−θ)(1−α̂up )−L
M P (θ) = D()dF ()
Z −s
s
+ (nθ(1 − α̂p ) + n(1 − θ)(1 − α̂up ))dF () + nθα̂p + n(1 − θ)α̂up .
nθ(1−α̂p )+n(1−θ)(1−α̂up )−L
We next prove that drivers who want to be prioritized work binding to α0 during peak in all three
cases. We will also show that given α0 , all drivers participate in the scheme.
L−s
• Case 1: θ(1 − α̂p ) ≤ n
.
In this case, Up (αp ) = pδ − 12 kαp2 . Optimally, αp∗ = α̂p = α0 and Up∗ = pδ − 12 kα02 . Substituting α̂p
R nθ(1−α0 )+n(1−θ)(1−α̂up )−L
∂Uup (αup ) −s F ()d
with α0 in Uup (αup ), and solving F.O.C. of Uup (αup ), ∂αup
= n(1−θ)(1−α̂up )
pδ −
R nθ(1−α0 )+n(1−θ)(1−α̂up )−L
pδ −s F ()d
kαup = 0, yields αup (α̂up ) = k n(1−θ)(1−α̂up )
. Letting αup (α̂up ) = α̂up , we have unpri-
R nθ(1−α0 )+n(1−θ)(1−α∗up )−L
F ()d
oritized drivers’ work ∗
decision αup ∗
which satisfies αup = pδ
k
−s
n(1−θ)(1−α∗
. Correspond-
up )
R nθ(1−α0 )+n(1−θ)(1−α∗up )−L
F ()d ∗ 2
ingly, drivers’ utility are Up∗ = pδ − 12 kα02 and Uup
∗
= (1 − −s n(1−θ)
)pδ − 12 kαup .
In equilibrium, the target workload α0 induces Up∗ = Uup ∗
. For the total matching quantity M P (θ) =
R nθ(1−α0 )+n(1−θ)(1−α∗up )−L P
n − −s F ()d, the derivative with respect to θ is dMdθ (θ) = nF0 · (α0 − αup
∗
+
dα∗
θ dα
dθ
0
+ (1 − θ) up
dθ
), ∗
where F0 = F [nθ(1 − α0 ) + n(1 − θ)(1 − αup ) − L]. We next characterize dα0
dθ
dα∗
up
and dθ
. From the following two implicit equations
R nθ(1−α0 )+n(1−θ)(1−α∗up )−L
1 2 F ()d 1 ∗ 2
pδ − kα0 = (1 − −s )pδ − kαup ,
2 n(1 − θ) 2
R nθ(1−α0 )+n(1−θ)(1−α∗up )−L
∗ pδ −s F ()d
αup = ∗ )
,
k n(1 − θ)(1 − αup

q
we can get α0 = ∗ )α∗ . In addition, differentiating α and α∗ with respect to θ respectively
(2 − αup up 0 up
in each implicit equation and then solving simultaneously yields

∗
∗
∗
∗
dα0 − 1 − αup F0 pδ α0 − αup − k 1 − αup αup
= ∗

∗
,
dθ F0 pδ α0 (1 − θ) + θ 1 − αup + α0 (1 − θ)k 1 − 2αup
and ∗
∗ ∗
dαup −α0 F0 pδ (α0 − αup ) − k 1 − αup αup
= ∗

∗
.
dθ F0 pδ α0 (1 − θ) + θ 1 − αup + α0 (1 − θ)k 1 − 2αup
dM P (θ)
Substituting the above two derivatives into dθ
and reorganizing, we have

2
dM P (θ) nkF0 α02 (1 − θ) (1 − 2αup ) + α0 (1 − θ)αup + θ (1 − αup ) 2 αup
=
dθ F0 pδ (α0 (1 − θ) + θ (1 − αup )) + α0 (1 − θ)k (1 − 2αup )
dM P (θ)
We can show that dθ
> 0, M P (θ) increases in θ, so θ∗ = 1.
L−s L+s
• Case 2: n
< θ(1 − α̂p ) ≤ n
.
R nθ(1−α̂p )+n(1−θ)(1−α̂up )−L
∂Uup (αup ) nθ(1−α̂p )−L
F ()d
In this case, solving F.O.C. of Uup (αup ), ∂αup
= n(1−θ)(1−α̂up )
pδ − kαup = 0
R nθ(1−α̂p )+n(1−θ)(1−α̂up )−L
F ()d
yields αup (α̂up ) = k n(1−θ)(1−α̂up )
. Letting αup (α̂up ) = α̂up , yields the optimal peak
R nθ(1−α̂p )+n(1−θ)(1−α̂up )−L
nθ(1−α̂p )−L
F ()d
∗
supply αup = α̂up where α̂up = pδ k n(1−θ)(1−α̂up )
.
R nθ(1−α̂p )−L
dUp (αp ) −s F ()d ∗
For prioritized drivers’ problem, we have dαp
= pδ nθ(1−α̂p )
− kαp , where αp ≥ α0 > αup .
R a+x R a+x
F ()d F ()d
Next, we prove that a
(−s < a < a + x < s) increases in x. Differentiating a x
x R
with
a+x F ()d
F (a+x)− a R a+x
respect to x yields x
x
. Differentiating xF (a + x) − a F ()d with respect to x
R a+x
yields xf (a + x) > 0, so xF (a + x) − a F ()d increases in x and it equals 0 at x = 0, meaning that
R a+x R a+x
F ()d ∗
xF (a + x) − a F ()d ≥ 0 and thus a x increases in x. Note that, for αup = α̂up where α̂up =
R nθ(1−α̂p )+n(1−θ)(1−α̂up )−L
F ()d
k n(1−θ)(1−α̂up )
, it is easy to get that the RHS increases in n(1 − θ)(1 − α̂up ) given
R nθ(1−α̂p )+n(1−θ)(1−α̂up )−L R −s
F ()d F ()d
pδ nθ(1−α̂p )−L pδ nθ(1−α̂p )−L
n(1 − θ)(1 − α̂up ) > L − s − nθ(1 − α̂), so α̂up = k n(1−θ)(1−α̂up )
> k L−s−nθ(1−α̂p ) =
R nθ(1−α̂p )−L R nθ(1−α̂p )−L R nθ(1−α̂p )−L
pδ −s F ()d pδ −s F ()d dUp (αp ) F ()d
k nθ(1−α̂p )−(L−s)
> k nθ(1−α̂p )
. Therefore, dαp = pδ −s nθ(1−α̂p ) − kαp < pδ α̂up −
kαp < 0, prioritized drivers optimally work up to α0 . Similarly, in equilibrium, there should be = Up∗
∗
∗
R nθ(1−α )+n(1−θ)(1−α )−L
Uup . For the total matching quantity M P (θ) = n − nθ(1−α00)−L up
F ()d, the derivative
dM P (θ) dα∗
with respect to θ is dθ
∗
= nF2 · (α0 − αup + θ dα
dθ
0
+ (1 − θ) up
dθ
) + nF1 · (1 − α0 − θ dα
dθ
0
), where
∗
F1 = F [nθ(1 − α0 ) − L] and F2 = F [nθ(1 − α0 ) + n(1 − θ)(1 − αup ) − L], 0 < F1 < F2 < 1. We next
dα0 dα∗
up
characterize dθ
and dθ
. From the following two equations, using the same technique as that in
Case 1
R nθ(1−α0 )−L R nθ(1−α0 )+n(1−θ)(1−α∗up )−L
−s
F ()d 1 2 nθ(1−α0 )−L
F ()d 1 ∗ 2
(1 − )pδ − kα0 = (1 − )pδ − kαup ,
nθ 2 n(1 − θ) 2
R nθ(1−α0 )+n(1−θ)(1−α∗up )−L
∗ pδ nθ(1−α0 )−L F ()d
αup = ∗ )
,
k n(1 − θ)(1 − αup

we obtain
dα0 −2 (1 − α0 ) F1 pδ (F2 (1 − θ)pδ − (2 − θ)kαup + k)
= +
dθ 2θ (α0 k (F2 pδ (−α0 θ + α0 + θ − θαup ) + (1 − θ)k (1 − 2αup )) − F1 pδ (F2 (1 − θ)pδ − (2 − θ)kαup + k))
F2 kpδ (α02 (−(1 − θ)) − 2α0 θ (1 − αup ) − αup ((θ + 1)αup − 2))
+
2θ (α0 k (F2 pδ (−α0 θ + α0 + θ − θαup ) + (1 − θ)k (1 − 2αup )) − F1 pδ (F2 (1 − θ)pδ − (2 − θ)kαup + k))

k 2 αup −(5 − θ)αup + 2αup 2
+ 2 − α02 (1 − θ) (1 − 2αup )
,
2θ (α0 k (F2 pδ (−α0 θ + α0 + θ − θαup ) + (1 − θ)k (1 − 2αup )) − F1 pδ (F2 (1 − θ)pδ − (2 − θ)kαup + k))
and
∗
dαup k (F2 pδ (−α02 + 2α0 αup − (2 − αup ) αup ) + 2α0 k (1 − αup ) αup )
= +
dθ 2k (F2 pδ (−α0 θ + α0 + θ − θαup ) + α0 (1 − θ)k (1 − 2αup )) − 2F1 pδ (F2 (1 − θ)pδ − (2 − θ)kαup + k)

F1 pδ 2F2 pδ (1 − αup ) − k −α02 + 2α0 − αup 2
.
2k (F2 pδ (−α0 θ + α0 + θ − θαup ) + α0 (1 − θ)k (1 − 2αup )) − 2F1 pδ (F2 (1 − θ)pδ − (2 − θ)kαup + k)
dM P (θ)
Substituting the above two derivatives of θ into dθ
yields

dM P (θ) −nkF1 2F2 (1 − θ)pδ (1 − αup ) 2 + k − (2 − α0 ) α0 (1 − θ) − (5 − θ)αup 2 3
+ 2 ((2 − α0 ) α0 (1 − θ) + 1) αup + 2αup
= +
dθ 2k (F2 pδ (−α0 θ + α0 + θ − θαup ) + α0 (1 − θ)k (1 − 2αup )) − 2F1 pδ (F2 (1 − θ)pδ − (2 − θ)kαup + k)

nk 2 F2 α02 (1 − θ) (1 − 2αup ) + 2α0 (1 − θ)αup
2
+ αup (αup (θ + 2αup − 5) + 2)
.
2k (F2 pδ (−α0 θ + α0 + θ − θαup ) + α0 (1 − θ)k (1 − 2αup )) − 2F1 pδ (F2 (1 − θ)pδ − (2 − θ)kαup + k)
dM P (θ)
We can show that dθ
> 0, so M P (θ) increases in θ and thus θ∗ = 1.
L+s
• Case 3: θ(1 − α̂p ) > n
.
There is no excess demand in this case. Thus, the optimal peak supply and utility for an unpri-
∗ pδ ∗ p2 δ 2 ∂Up (αp ) L
oritized driver are αup = k
and Uup = 2k
. Because ∂αp
= (1 − nθ(1−α̂p )
)pδ − kαp < 0 given
∗ pδ
αp ≥ α0 > αup = k
there must be αp∗ = α̂p = α0 and Up∗ = ( nθ
, L
(1 − α0 ) + α0 )pδ − 21 kα02 . Solving
q
Up∗ = Uup
∗
yields α0 = 2Lpδ knθ
+ pδ
k
. The total matching achieved is M P (θ) = L + nθα0 + n(1 − θ) pδ k
=
q
L + n pδ
k
+ 2Lnθk
pδ, it is easy to know M P (θ) increases in θ, so θ∗ = 1.
Therefore, we summarize that drivers’ utility function in prioritization scheme, denoted as U P (α0 ),
is the same as (A.16), i.e.,

L 1
( n + αR0 )pδ − 2 kα0
 2
if α0 < 1 − L+s
n
,
n(1−α )−L
U P (α0 ) = Up (α0 ) = (1 − n1 −s 0 F ()d)pδ − 21 kα02 if 1 − n ≤ α0 < 1 − L−s
L+s
n
, (A.27)

pδ − 12 kα02 L−s
if α0 ≥ 1 − n ,

and total matching is the same as (A.17), so that M P (α0 ) increases in α0 .

We now characterize a driver’s utility by deviating from the scheme.
L+s
In case of α0 ≤ 1 − n
for any realized off-peak demand, there is no excess demand, thus the
problem of a driver who deviates from engaging in the scheme is the same as that of unqualified
drivers in qualification scheme. To ensure no deviation from prioritization scheme, the platform
essentially faces the same trade-off as in qualification scheme when deciding α0 in this case. In
∗ pδ p2 δ 2
this case, unprioritized drivers work αup = k
during peak and obtain U0 = 2k
. Please refer to the
proof of Lemma 3 for details.

In case of α0 > 1 − L+s

n
, there is always excess demand to be served by unprioritized drivers. A
prioritized driver who deviates will expect to generate the following utility, as a function of his
peak work time αd ,
n(1−α0 )−L+(1−αd )
D() − n(1 − α0 )
Z
Ud (αd ) = dF () · pδ(1 − αd )+
n(1−α0 )−L 1 − αd
Z s
1
dF () · pδ(1 − αd ) + pδ · αd − k · αd2 .
n(1−α0 )−L+(1−αd ) 2
First, the platform prefers setting α0 that satisfies α0 ≥ 1 − L−s

n
, in which case the equilibrium total
matching is the highest (n). For U P (α0 ) = pδ − 21 kα02 , which decreases in α0 , the equilibrium target
(if exists) is thus α0∗ = 1 − L−s
n
. At α0∗ = 1 − L−s
n
, a driver’s utility U P = pδ − 12 k(1 − L−s
n
)2 by engaging
in the scheme, should be no less than a driver’s utility from deviation, i.e., Ud (αd )|α0 =1− L−s =
R n
1−αd −s Rs 1 2
−s
(s + )dF () + 1−α −s
(1 − αd )dF () pδ + pδαd − 2
kα d . We next find the optimal solution
d
αd of function Ud (αd )|α0 =1− L−s .

n
Rs
• If 1 − αd − s ≥ s, i.e., αd ≤ 1 − 2s, the driver’s utility becomes Ud (αd ) = −s
(s + )dF ()pδ +
pδ
αd pδ − 1
2
kαd2 = (s + αd )pδ − 1
2
kαd2 , for which the optimal supply, denoted by αd∗ , is αd∗ = k
(where
pδ
k
≤ 1 − 2s, we only consider the interior solution here), and the driver who deviates will earn
2 2
Ud∗ = spδ + p2kδ .
We next find conditions that ensure α0∗ = 1 − L−s
n
to be the equilibrium target. To ensure
all drivers to be incentivized to engage in the scheme, there must be U P ≥ Ud∗ . Define ∆U =
p2 δ 2 2 2
U P − Ud∗ = pδ − 21 k(1 − L−s 2
n
) − spδ − 2k
. Because ∂∆U
∂k
= 21 ( pkδ2 − (1 − L−s 2
n
) ) < 0, ∆U
pδ
decrease
r
in k. Solving ∆U ≥ !0 and combining the constraint k
≤ 1 − 2s, we obtain k ≤
−L2 +2Ls−s2 2(L−s)
pδ + n +s2 −2s−s+1
n2 p
2 as long as s ≤ n (n + 1)2 − 2L + L − n2 − n. In this case, we can
1− L−s
( )
r n !
−L2 +2Ls−s2 2(L−s) 2 −2s−s+1
pδ + n +s
n2
show that 2 < k2 .
(1− L−s
n )
• If 1 − αd − s < s, i.e., αd > 1 − 2s, Ud (αd ) can be simplified into Ud (αd ) = 1 −
R 1−αd −s
−s
F ()d pδ − 21 kαd2 . Solving F.O.C., yields αd∗ = pδ
k
F (1 − αd∗ − s) (written as αd∗ = pδ
k 0
F p ) and
R 1−α∗ −s
Ud∗ = 1 − −s d F ()d pδ − 12 kαd∗ 2 . To ensure there is an equilibrium in this case, there must
p2 δ 2
be Ud∗ > U0 = 2k
. This is because a driver deviates only if he obtains the utility from deviation
that is no less than the reservation utility.
We next find conditions that ensure α0∗ = 1 − L−s
n
to be the equilibrium target. Similarly, we
∗
1−α d −s
F ()d)pδ + 12 kαd∗ 2 . Differentiating ∆U
R
have ∆U = U P − Ud∗ = pδ − 12 k(1 − L−sn
) 2
− (1 − −s
∂α∗ ∂α∗
with respect to k yields ∂∆U
∂k
= − 21 (1 − L−s
n
)2 − pδF0p ∂kd + 12 αd∗ 2 + kαd∗ ∂kd = − 12 (1 − L−s n
)2 + 12 αd∗ 2 ,
which is negative given αd∗ < pδ
k
(< 1 − L−s n
), so ∆U decreases in k. Therefore, solving ∆U ≥ 0
R 1−α∗d −s F ()d
2pδ
and U P ≥ U0 simultaneously, we obtain k ≤ (1−−sL−s )2 −α∗ 2 . In addition, in equilibrium αd∗ must
n d

satisfy 1 − 2s < αd∗ < 1 − L−s

n
simultaneously, which results in s > L
2n+1
. We can show that L
2n+1
<
p
n (n + 1)2 − 2L + L − n2 − n.
Therefore, combine the above two cases, we find that the platform sets the peak target as
α0∗ = 1 − L−s
n
when k ≤ k0 where k0 < k2 and
 r !
−L2 +2Ls−s2 2(L−s)
 pδ 2 + n +s2 −2s−s+1
 n p
, if s ≤ n (n + 1)2 − 2L + L − n2 − n,


L−s 2
k0 = ( n )
1− . (A.28)
R 1−α∗ −s
2pδ −s d

 F ()d p
, if s > n (n + 1)2 − 2L + L − n2 − n,


(1− L−s )2 −α∗ 2
n d
L+s L−s
Second, the platform would like to set α0 that satisfies 1 − n
< α0 < 1 −
if k > k0 . n

In this case, the driver’s utility function from deviation can be simplified into Ud (αd ) = 1 −
R n(1−α0 )−L+(1−αd ) 2
n(1−α0 )−L
F ()d) · pδ − 12 k · αd2 . Because ∂ ∂U2dα(αd ) = −f [n(1 − α0 ) − L + (1 − αd )] − k < 0,
d
Ud (αd ) is concave in αd , then solving F.O.C. yields the optimal peak supply αd∗ when deviation
occurs and αd∗ satisfies αd∗ = pδ
k
F [n(1 − α0 ) − L + (1 − αd∗ )] (written as αd∗ = pδ F p ). The driver expects
k 1
R n(1−α )−L+(1−α∗d )
to obtain utility Ud∗ (αd∗ (α0 )) = (1 − n(1−α00)−L F ()d)pδ − 12 kαd∗ 2 . Anticipating αd∗ (α0 ), α0
must satisfy U P (α0 ) ≥ Ud∗ (αd∗ (α0 )) and α0 ≥ αd∗ , which are conditions that ensure the existence
dU P (α0 )
of an equilibrium in this case. Because dα0
= F [n(1 − α0 ) − L]pδ − kα0 < F1p pδ − kα0 < 0 for
α0 > αd∗ , U P (α0 ) decreases in α0 . In addition, differentiating the following two implicit equations
with respect to α0 from both sides and reorganizing,
pδ
αd∗ (α0 ) = F [n(1 − α0 ) − L + (1 − αd∗ (α0 ))],
k
Z n(1−α0 )−L+(1−α∗d (α0 ))
1 2
Ud∗ (αd∗ (α0 )) = (1 − F ()d)pδ − kαd∗ (α0 ) ,
n(1−α0 )−L 2
∂U ∗ (α∗ (α )) ∂α∗ ∗

d (α0 ) ∗ ∂αd (α0 )
we obtain d ∂αd0 0 = F1p (n + ∂α 0
) − nF [n(1 − α0 ) − L] pδ − kαd ∂α0 = n F1p − F [n(1 −
∂α∗

d (α0 )
α0 ) − L] pδ + (pδF1p − kαd∗ ) ∂α 0
= n(F1p − F [n(1 − α0 ) − L])pδ > 0, so that Ud∗ (αd∗ (α0 )) increases
in α0 . Therefore, increasing α0 not only decreases prioritized drivers’ utility but increases drivers’
utility from deviation, the optimal target (if exists) is unique.
We next derive conditions that ensure the existence of an equilibrium in this case. Because
dU P (α0 ) L+s dUd∗ (α∗
d (α0 ))
dα0
< 0, U P (α0 ) < U P (α0 = 1 − n
) = (1 − ns )pδ − 12 k(1 − L+s 2
n
) . Because dα0
> 0, we
p2 δ 2
have Ud∗ > Ud∗ (αd∗ (α0 =1− L+s
n
)) = 2k
(= U0 ). To ensure an equilibrium, it is necessary to have
p2 δ 2
max U P ≥ min Ud∗ , i.e., (1 − ns )pδ − 12 k(1 − L+s
n
)2 ≥ 2k
, which is equivalent to k ≤ k3 .
dU P (α0 ) dUd∗ (α∗
d (α0 ))
We next characterize the equilibrium target. Because dα0
< 0 and dα0
> 0, ∆U (α0 ) =
U P (α0 ) − Ud∗ (αd∗ (α0 )) decreases in α0 . Letting ∆U (α0 ) ≥ 0 yields α0 ≤ α0p , where α0p is determined
R n(1−αp )−L 2 R n(1−αp )−L+(1−α∗d )
by (1 − n1 −s 0 F ()d)pδ − 21 kα0p = (1 − n(1−αp0)−L F ()d)pδ − 12 kαd∗ 2 and α0p > αd∗
0
pδ p
where αd∗ satisfies αd∗ = F .
k 1

Therefore, we can summarize the equilibrium outcomes in prioritization scheme in a closed

system as follows.
L−s

1 p− n ,
 if k ≤ k0 ,
The platform’s equilibrium target α0P = α0 , q if k0 < k ≤ k3 , ; each driver obtains util-
 pδ
 pδ
k
+ 2 Ln k , if k > k3 .
 1
pδ − 2 (1
 − L−s
np
)2 , if k ≤ k0 ,
P 1
R n(1−α0 )−L 1 p2
ity UC = (1 − n −s F ()d)pδ − 2 kα0 , if k0 < k ≤ k3 , ; and the total matching quantity
 p2 δ 2

 2k
, if k > k3 .
n
 if k ≤ k0
 R n(1−αp0 )−L
MCP = n − −s q F ()d if k0 < k ≤ k3 , where max{αd∗ , 1 − L+s n
} < α0p < 1 − L−s
n
and it solves

L + n pδ + 2nL pδ

if k > k3 .
k k
1−α
p
−L 2 R n(1−αp )−L+(1−α∗d )
the implicit equation (1 − n1 −s 0 F ()d)pδ − 12 kα0p = (1 − n(1−αp0)−L F ()d)pδ − 12 kαd∗ 2 ,
R
0
in which αd∗ satisfies αd∗ = pδk
F [n(1 − α0 ) − L + (1 − αd∗ )]; k0 < k2 and
 r !
−L2 +2Ls−s2 2(L−s) 2 −2s−s+1
 pδ + n +s
 n2 p
, if s ≤ n (n + 1)2 − 2L + L − n2 − n,


L−s 2
k0 = (1− n )
 R 1−α∗
d −s
 2pδ −sL−s 2 F ()d
 p
, if s > n (n + 1)2 − 2L + L − n2 − n.

(1− ) −α ∗ 2
n d

Proof of Proposition 1: Through simple comparison, we find k1 < k3 .
1. Qualification scheme v.s. Benchmark
L−s

1 q− n , if k ≤ k2 ,
( b
α, if k ≤ k1,

B
αC = √ Q
v.s. α0 = α0 , if k2 < k ≤ k3 ,
k+pδ− (k−pδ)2 +4 kL
n pδ
, if k > k .
q
 pδ
+ 2 Ln pδ
1

2k
k k
, if k > k3 .
B
It is easy to get that αC < pδ
k
< α0Q .
We next compare drivers’ utility
R n(1−αb )−L
 (
F ()d 2

(1 − −s 1
)pδ − √ kαb , if k ≤ k1 , pδ − 1 (1 − L−s )2 , if k ≤ k2 ,
UCB = n 2 v.s. UCQ = p2 δ2 2 n
 −k2 +2 kL 2 2
n pδ , if k > k2 .
4k
, if k > k1 . 2k
R 1−αb −L 2
If k ≤ k1 , UCB = (1 − n1 F ()d)pδ − 21 kαb > pδ − 12 (1 − L−s )2 ≥ UCQ .
−s √ n
R 1−αb −L
−k2 +2 kL 2 2
n pδ 1
If k1 < k ≤ k2 , UCB = 4k
> (1 − n −s
F ()d)pδ −
1 b2 1 L−s 2 Q
2
kα > pδ − 2 (1 − n ) ≥ UC . √
−k2 +2 kL 2 2
n pδ
2 2
If k > k2 , UCB = 4k
> p2kδ = UCQ .
We then compare the matching volume

 b n, if k ≤ k2 ,
n − n(1−α )−L F ()d,
R
if k ≤ k1 ,

 R n(1−αq0 )−L
B
MC = −s √ Q
v.s. MC = n − −s q F ()d, if k2 < k ≤ k3 ,
L + n k+pδ− (k−pδ)2 +4 kL
n pδ
, if k > k . 
2k 1 L + n pδ + 2nL pδ ,

if k > k3 .
k k

R n(1−αb )−L R n(1−αq )−L

If k ≤ k1 , MCB = n − F ()d < n − −s 0 F ()d ≤ MCQ .
−s √
n pδ
If k1 < k ≤ k2 , MCB = L + n √ 2k < n = MCQ .
n pδ
R n(1−αq0 )−L
If k2 < k ≤ k3 , MCB = L + n < n − s < n − F ()d = MCQ .
√ 2k q −s
n pδ
If k > k3 , MCB = L + n 2k
< L + n pδ
k
+ 2nL pδ k
= MCQ .
2. Prioritization scheme v.s. Benchmark
We first compare peak supply
L−s

1 p− n , if k ≤ k0 ,
( b
α, if k ≤ k1,

B
αC = √ v.s. α0 = α0 , q
P if k0 < k ≤ k3 ,
n pδ
, if k > k 1 .  pδ L pδ
2k + 2 n k , if k > k3 .

k
R n(1−αp0 )−L F ()d

Note that, αd∗ = pδ
k
F [n(1 − α0p ) − L + (1 − αd∗ )] > pδ
k
F [n(1 − α0p ) − L] > pδ −s
k p
n(1−α0 )
and α0p >
R n(1−αp0 )−L F ()d
R n(1−α)−L
F ()d
αd∗ , so α0p > pδ −s
k p
n(1−α0 )
. As proved in Proof of Lemma 1, −s
n(1−α)
decreases in α,
R n(1−α)−L R n(1−αb )−L
F ()d F ()d
thus α = pδ −s
k n(1−α)
has a unique solution. Recall that αb = pδ −s
k n(1−αb )
, whereas α0p >
R n(1−αp0 )−L F ()d
pδ −s
k p
n(1−α0 )
, thus α0p > αb and α0P > αC
B
.
R n(1−αb )−L

F ()d 1 2
(1 − −s )pδ − √ kαb , if k ≤ k1 ,

UCB = n 2 v.s.
 −k2 +2 kL n pδ+2δkp+δ 2 2
p +(k−pδ) (k−pδ)2 +4 kL pδ
n
4k
, if k > k1 .
 1 L−s 2
pδ − 2 (1
 − ) ,
R n(1−αnp0 )−L
if k ≤ k0 ,
P 1 1 p2
UC = (1 − n −s F ()d)pδ − 2 kα0 , if k0 < k ≤ k3 ,
 p2 δ 2

2k
, if k > k3 .
R n(1−αb )−L 2
If k ≤ k1 , UCB = (1 − n1 F ()d)pδ − 21 kαb > pδ − 12 (1 − L−s )2 = UCP .
−s
2 kL 2 2
√ kL
n
R n(1−αb )−L
2
−k +2 n pδ+2δkp+δ p +(k−pδ) (k−pδ) +4 n pδ
If k1 < k ≤ k0 , UCB = 4k
> (1 − n1 −s
F ()d)pδ −
1 2 1
2
kαb > pδ − 2
(1 − L−s
n
)2 = UCP .
R n(1−αb )−L 2
If k0 < k ≤ k3 , UCB = (1 − n1 −s F ()d)pδ − 12 kαb > pδ − 1
2
(1 − L−s 2
n
) > (1 −
R n(1−αp0 )−L 2
1
F ()d)pδ − 12 kα0p = UCP .
n −s √
−k2 +2δk(L+1)p+(k−pδ) (k−pδ)2 +4kLpδ+δ 2 p2 2 2
If k > k3 , UCB = 4k
> p2kδ = UCP .
We next compare total matching quantity

 b  n, if k ≤ k0 ,
n − n(1−α )−L F ()d,
R
if k ≤ k ,

 R n(1−αp0 )−L
1
MCB = −s √ v.s. MCP = n − −s q F ()d, if k0 < k ≤ k3 ,
L + n k+pδ− (k−pδ)2 +4 kL
n pδ
, if k > k . 
2k 1 L + n pδ + 2nL pδ ,

if k > k3 .
k k
R n(1−αb )−L R n(1−αp )−L

If k ≤ k1 , MCB = n − F ()d < n − −s 0 F ()d ≤ MCP .
−s √ kL
2
k+pδ− (k−pδ) +4 n pδ
If k1 < k ≤ k0 , MCB = L + n 2k
< n − s < n = MCP .

√ p
(k−pδ)2 +4 kL
k+pδ− n pδ
R n(1−α0 )−L
If k0 < k ≤ k3 , MCB =L+n < n − s < n − F ()d = MCP .
√ 2k q −s
k+pδ− (k−pδ)2 +4 kL pδ pδ pδ
If k > k3 , MCB = L+n 2k
n
< L + n k + 2nL k = MCP .
3. Prioritization scheme v.s. Qualification scheme
L−s L−s
 
1
 q − n
, if k ≤ k2 , 1 p− n ,
 if k ≤ k0 ,
Q
α0 = α0 , q if k2 < k ≤ k3 , v.s. α0P = α0 , q if k0 < k ≤ k3 ,
 pδ
+ 2 Ln pδ pδ
+ 2 Ln pδ
 
, if k > k3 . , if k > k3 .

k k k k
pδ
Note that, at α0 = 1 − L+s
n
, the driver who deviates will work αd∗ = k
during peak and obtains
2 2
p δ
Ud∗ = 2k
(= U0 ). As proved in Proof of Lemma 4, when 1 − L+s
≤ α0 < 1 − L−s
n n
, Ud∗ (αd∗ (α0 ))
2 2 R n(1−αq )−L
increases in α0 , thus Ud∗ > p2kδ = U0 . Because α0q is determined by (1 − n1 −s 0 F ()d)pδ −
p
2 1−α −L 2
kα0q = U0 and α0p is determined by (1 − −s 0 F ()d)pδ − 12 kα0p = Ud∗ > U0 , and (1 −
1
R
2
R 1−α−L
−s
F ()d)pδ − 21 kα2 decreases in α, thus α0q > α0p and α0Q > α0P .
 1
(
1 L−s 2 pδ − 2 (1
 − L−s
np
)2 , if k ≤ k0 ,
pδ − (1 − ) , if k ≤ k2 , n(1−α )−L
UCQ = p2 δ2 2 n
v.s. UCP = (1 − n1 −s 0 2
F ()d)pδ − 12 kα0p ,
R
if k0 < k ≤ k3 , ;
2k
, if k > k 2 ,  p2 δ 2

2k
, if k > k3 .
R n(1−αp0 )−L 2 p2 δ 2
Because (1 − n1 −s
F ()d)pδ − 21 kα0p = Ud∗ > 2k
, UCQ ≤ UCP .
We next compare total matching quantity
 

n, if k ≤ k2 , 
n, if k ≤ k0 ,
 q  R n(1−αp )−L
R n(1−α )−L
MCQ = n − −s q 0
F ()d, if k2 < k ≤ k3 , v.s. MCP = n − −s 0
q
F ()d, if k0 < k ≤ k3 ,
 

if k > k3 .

 pδ
L + n k + 2nL pδ , if k > k3 .
k k k
It is easy to get MCQ ≥ MCP because of α0q ≥ α0p .

Proof of Lemma 5: In an open system without incentive schemes, the utility of full-time drivers
is UOB (α) = α · pδ − 12 k · α2 , solving F.O.C. yields the optimal peak supply αO
B
= pδ
k
and the corre-
2 2 s
sponding utility UOB = p2kδ . The matching quantity MOB = −s D()d + nαO = L + n pδ
R B
k
.
Proof of Proposition 2: In previous analysis, we have αC B

< pδ
k
, so αCB
< αO B
. Recall MCB =
b
n − R n(1−α )−L F ()d, if k ≤ k1 R n(1−αb )−L
−s √ kL , if k ≤ k1 , MO
B
− M B
C = L + n pδ
− n + F ()d >
L + n(k+pδ− (k−pδ)2 +4 n pδ) , if k > k k −s
2k 1
L + n pδ − n + n(1 − αb ) − L + s = n( pδ − αb ) + s > 0; if k > k1 , MOB = L + n pδ >L+
√
k k k
2
n(k+pδ− (k−pδ) +4kLpδ) 2 2
2k
= MCB , so MOB > MCB . For the driver’s utility, UCB > p2kδ > UOB .


Proof of Lemma 6: In an open system with prioritization scheme, unprioritized drivers (with
p2 δ 2 ∗ pδ
proportion 1 − θ, 0 < θ < 1) get Uuq = 2k
by working αuq = k
during peak hours. The optimization
problem of a prioritized driver is the same as that in a closed system, that is


pδ − 21 kαp2 , if θ(1 − α̂p ) < L−s
n
,
 R nθ(1−α̂p )−L
F ()d
Up (αp ) = 1 − (1 − αp ) −s nθ(1−α̂p ) pδ − 12 kαp 2 , if L−s
n
≤ θ(1 − α̂p ) < L+s
n
, (A.29)

( L (1 − α ) + α )pδ − 1 kα2 ,

if θ(1 − α̂ ) ≥ L+s .
nθ(1−α̂p ) p p 2 p p n
We next show that drivers who want to get prioritized work binding to α0 , and the platform prefers
all drivers joining the scheme.
• If θ(1 − α̂p ) < L−s
n
, it is easy to get αp∗ = α0 . In equilibrium, α0∗ is determined by pδ − 12 kα02 =
q
p2 δ 2
2k
, so α0 = pδ k
(2 − pδ
k
). Total matching M P = L + nθα0 + n(1 − θ) pδ k
, which increases in θ, so
θ∗ = 1.
L−s
• If θ(1 − α̂p ) ≥ n
, the analysis is the same as that in qualification scheme in closed systems,
and thus is omitted here.
p2 δ 2
Given α̂p = α0 and θ∗ = 1, the platform determines α0 by inducing U P (α) = 2k
, where U P (α) is
p2 δ 2
the same as (A.27) and 2k
is the utility that a driver obtains if being unprioritized. Following this
logic in determining α0 , we can summarize the platform’s target decision when using prioritization
scheme in open system, denoted by α0 PO
q
pδ pδ
 k (2 − k ), if k ≤ k2 ,


α0 PO = α0q , if k2 < k ≤ k3 , (A.30)
 q
 pδ + 2 L pδ , if k > k ,

k n k 3
R n(1−αq0 )−L 2 p2 δ 2
where α0q > pδ
k
and is determined by (1 − n1 −s
F ()d)pδ − 12 kα0q = 2k
. Then the platform’s
profit, denoted by MOP , becomes
 q
pδ


 L + n k
(2 − pδ
k
), if k ≤ k2 ,
P q
MO = L + nα0 ,
q if k2 < k ≤ k3 , (A.31)

L + n pδ + 2nL pδ , if k > k .

k k 3

Proof of Proposition 3:
1. Qualification scheme v.s. Benchmark
It is easy to get that α0Q > B
= αO pδ
. For the comparison of total matching quantity, we define
k

 n − L − n pδ , if k ≤ k2 ,
R n(1−αkq0 )−L


Q pδ
B
∆M (k) = MO − MO = n − F ()d − L − n k , if k2 < k ≤ k3 ,
 q −s
 2nL pδ ,

if k > k3 .
k

L+s pδ pδ
• When 1 − n
> k
, if k ≤ k2 , ∆M (k) = n(1 − − L > 0; if k2 < k ≤ k3 , ∆M (k) = n −
k
)
R 1−αq0 −L q
−s
F ()d − L − n pδ
k
> n − s − L − n pδ
k
> 0, so MOQ > MOB ; if k > k3 , ∆M (k) = 2nL pδ
k
> 0. In
this case, MOQ > MOB always holds. (
n − L − n pδ , if k ≤ k2
L+s pδ
• When 1 − n ≤ k , ∆M (k) = R n(1−αkq0 )−L pδ pδ .
n − −s F ()d − L − n k , if k2 < k ≤ 1− L+s
n
If k ≤ k2 , solving ∆M (k) ≥ (<)0 yields k ≥ (<) 1−pδL .
n
pδ
If k2 < k ≤ 1− L+s
, before finding conditions in which ∆M (k) ≥ (<)0, we first identify the lower
n
bound of α0q , denoted by αq0 , and the sign of ∆M (k) in this case. Taking derivative of the implicit
R n(1−αq )−L 2 2 2 ∂α
q
function (1 − n1 −s 0 F ()d)pδ − 21 kα0q = p2kδ with respect to k and reorganizing yields ∂k0 =
q2 2 2
α0 − p 2 δ
∂α0
q
1 k
2 pδF [n(1−αq0 )−L]−kαq0
. Because α0q > < 0, meaning α0q decreases in k, so that αq0
pδ
k
, we have ∂k
R n(1−αq )−L
is obtained at k = 1−pδ
L+s . Thus ∆M (k =
pδ
1− L+s
) = n − −s 0 F ()d)pδ − L − npδ
pδ >s−
n n
1− L+s
n
R n(1−(1− L+s
n ))−L
−s
F ()d)pδ = 0. At k = k2 , α0q = 1 − L−s
n
.
We next find conditions in which ∆M (k) ≥ (<)0. According to the total differential formula,
q
d∆M (k) ∂∆M (k) ∂α0
dk
= ∂k
+ ∂∆M
∂α
(k)
q
∂k
,
0
q 2 2 2
d∆M (k) 2α0 pδ
k
− (α0q + pkδ2 )F [n(1 − α0q ) − L]
= . (A.32)
dk 2k(α0q − pδ
k
F [n(1 − α0q ) − L])
d∆M (k) d∆M (k) q
d2 ∆M (k) ∂ ∂ ∂α0
In addition, according to d2 k
= dk
∂k
+ dk
q
∂α0 ∂k
, we get the second derivative of ∆M (k)
with respect to k

3 3 4 2
2
d ∆M (k) −8k 3 α0q pδ + 4F03 p4 δ 4 + F02 −4pδα0q k 3 − 12kα0q p3 δ 3 + F0 3k 4 α0q + 18k 2 α0q p2 δ 2 − p4 δ 4
=
d2 k 2(kα0q − pδF0 )
2
f0 α0q (k 2 α0q − p2 δ 2 )2
−n ,
2(kα0q − pδF0 )
(A.33)
where F0 = F [n(1 − α0q ) − L] and 0 < F0 < 1, f0 = f [n(1 − α0q ) − L] and 0 < f0 < 1. We next show
that the first term in (A.33) is negative. Define
R(x) = −F0 + 4F03 + −4F02 − 8 x3 − 12F02 x + 3F0 x4 + 18F0 x2

(A.34)
q
α0
where x = pδ/k
and x > 1. We first list parameters for equation R(x) = 0 as follows


 a0 = 3F0 ,
2
b0 = −4F0 − 8,



c0 = 18F0 ,
d0 = −12F02 ,





e0 = −F0 + 4F03 .


Following the procedure of finding roots for a fourth quadratic function, we then derive the following
discriminants of roots properties for equation R(x) = 0


 D0 = 3b20 − 8a0 c0 = 48 (F04 − 5F02 + 4) ,
 3 2 2 2 2
E0 = −b0 + 4a0 b0 c0 − 8a0 d0 = 64 (F0 − 1) (F0 + 8) ,



4 2 2 2 2 3 4 2 2
G0 = 3b0 + 16a0 c0 − 16a0 b0 c0 + 16a0 b0 d0 − 64a0 e0 = 768 (F0 − 5F0 + 4) ,



A0 = D02 − 3G0 = 0,
3
B0 = D0 G0 − 9E02 = −995328F04 (F02 − 1) ,




4

C0 = G20 − 3D0 E02 = −15925248F04 (F02 − 4) (F02 − 1) ,




∆ = B02 − 4A0 C0 = B02 .

Because ∆ > 0, there are two real roots for R(x) = 0, which are x1 = −3B0 , x2 = 0 (derived from
√
x1,2 = A0 D0 + 3( −B0 +(−)
2
∆
)), which indicates there are no solution for R(x) = 0 where x > 1. R(x =
d2 ∆M (k)
2
1) = 4(F − 2)(F − 1) < 0, so R(x) < 0 for x > 1. That is, d2 k
< 0 in k ∈ (k2 , 1−pδ
L+s ], meaning
n
d∆M (k) pδ
dk
decreases in k. Recall that ∆M (k = 1− L+s
) > 0, so ∆M (k) increases in k ∈ (k2 , 1−pδ
L+s ]. As
n
√ n
for ∆M (k = k2 ) = n − L − n kpδ2 , if k2 ≥ pδ
1− L
(i.e., s ≤ n2 − L2 + L − n), ∆M (k) ≥ 0 (MOQ ≥ MOB )
√ n
in k ∈ (k2 , 1−pδ
L+s ]. If k2 <
pδ
(i.e., s > n2 − L2 + L − n), ∆M (k2 ) < 0, indicating that there
1− L
n n
R n(1−α̃q )−L
exists a threshold k̃ that satisfies n − −s 0 F ()d − L − n pδ
k̃
= 0 in which α̃0q > pδ
k̃
and α̃0q
q
R n(1−α̃ )−L 2 2
solves (1 − n1 −s 0 F ()d)pδ − 12 k̃ α̃0q2 = p2k̃δ , so that ∆M (k) < 0 (MOQ < MOB ) in k ∈ (k2 , k̃)
and ∆M (k) > 0 (MOQ > MOB ) in k ∈ (k̃, 1−L−s
pδ
].
Therefore, we summarize that MOQ ≤ MOB when k ≤ k4 and MOQ > MOB when k > k4 , where k4 < k3
and ( √
pδ
1−L/n
, if s ≤ n2 − L2 + L − n,
k4 = √ (A.35)
k̃, if s > n2 − L2 + L − n,
R n(1−α̃q )−L
in which k̃ satisfies n − −s 0 F ()d − L − n pδ k̃
= 0 and α̃0q (α̃0q > pδ k̃
) solves (1 −
q 2 2
1− α̃ −L
F ()d)pδ − 12 k̃ α̃0q2 = p2k̃δ . (
1
R 0
n −s
pδ − 1 (1 − L + s)2 , if k ≤ k2 ,
For the driver’s utility, UOQ = UCQ = p2 δ2 2 , which is no less than UOB , so
2k
, if k > k2 .
UOQ ≥ UOB .
2. Prioritization scheme v.s. Benchmark q
pδ pδ
 k (2 − k ), if k ≤ k2 ,


It is easy to get that α0Q > pδ
k
B
= αO B
. Based on αO = pδ
k
and α0 PO = α0q , if k2 < k ≤ k3 , ,
 q
 pδ + 2 L pδ , if k > k .

k n k 3
q
pδ pδ pδ
 k (2 − k ) − k , if k ≤ k2 ,


it is easy to get α0 PO > αO
B
. Because MOP − MOB = α0q − pδ if k2 < k ≤ k3 , , it is also easy
q k,
 2 L pδ ,

if k > k3 .
n k
P B B P
to get MO > MO . For the driver’s utility, UO = UO .
3. Qualification scheme v.s. Prioritization scheme

 q
pδ


 L + n k
(2 − pδ
k
) − n, if k ≤ k2 ,
P Q P Q q
First, α0 O ≥ α0 . Because MO − MO = L + nαq − (n − n(1−α0 )−L F ()d), if k2 < k ≤ k3 , ,
R
 0 −s

0, if k > k3 .
P Q q
R n(1−αq0 )−L R n(1−αq0 )−L
when k2 < k ≤ k3 , MO − MO = L + nα0 − (n − −s F ()d) = −s (L + )dF () +
Rs R q
q n(1−α )−L R s q q
q
n(1−α0 )−L
(L + )dF () + nα 0 − −s
0
(L + )dF () + q
n(1−α0 )−L
n(1 − α 0 )dF () + nα 0 =
Rs
n(1−αB )−L
− n(1 − α0q ) + L) dF () > 0, and it is easy to get MOP ≥ MOQ in other two cases, so
MOP ≥ MOQ . (
pδ − 1 (1 − L−s )2 , if k ≤ k2 , p2 δ 2
Because UOQ = UCQ = p2 δ2 2 n
, which is no less than 2k
, so UOQ ≥ UOP .
2k
, if k > k2 .

Proof of Proposition 4 :
Closed System
We first characterize the condition in which the platform is better to use qualification scheme than
use different commission rates in a closed system.
Different Commission Rates. Given commission rates δ1 and δ2 ( pc ≤ δ1 < δ2 < 1) for driving
during off-peak and peak respectively, we look at an individual (full-time) driver’s problem. Taking
the average work time α̂ of all drivers as given, the driver has a possibility (denoted by R1 ) to get
a passenger during off-peak
L+
R1 = dF () + dF (), (A.36)
−s n(1 − α̂) n(1−α̂)−L
R n(1−α̂)−L
−s F ()d
which can be simplified into R1 = 1 − n(1−α̂)
. The driver’s utility of his work time α can be
represented by
1
UCD (α) = (pδ1 − c)(1 − α) · R1 + (pδ2 − c)α − kα2 .
2
We next characterize the equilibrium supply during peak.
• If α̂ ≥ 1 − L−s
n
, the driver’s utility function of α becomes UCD (α) = (1 − α)(pδ1 − c) + α(pδ2 −
c) − 12 kα2 . Solving F.O.C. yields α∗ (α̂) and letting α∗ (α̂) = α̂ yields
k(1− L−s
(
n )
∗ 1 − L−s
n
, if δ 2 − δ 1 < p
,
α = p(δ −δ ) k(1− L−s
n )
2
k
1
, if δ2 − δ1 ≥ p
.
Correspondingly, each driver’s utility is
k(1− L−s
(
L−s n )
D n
(pδ1 − c) + (1 − L−s n
)(pδ2 − c) − 12 k(1 − L−s n
)2 , if δ2 − δ1 < p
,
UC = p(δ2 −δ1 ) p(δ2 −δ1 ) 2
p (δ2 −δ1 )2 L−s
k(1− n )
(1 − k
)(pδ1 − c) + k
(pδ2 − c) − 2k
, if δ2 − δ1 ≥ p
;
and the platform’s problem is
(
L−s
n
p(1 − δ1 ) + (1 − L−s n
)p(1 − δ2 ), if δ2 − δ1 < k(1−L+s)
p
,
max Π(δ1 , δ2 ) = p(δ2 −δ1 )
δ1 ,δ2 (1 − k
)p(1 − δ1 ) + p(δ2k−δ1 ) p(1 − δ2 ), if δ2 − δ1 ≥ k(1−L+s)
p
.

k(1− L−s
n )
Note, if δ2 − δ1 < p
, we easily get that the platform’s optimal decisions δ2∗ = δ1∗ = c
p
but
k(1− L−s
n )
drivers obtain negative utility, thus this case is never an equilibrium. If δ2 − δ1 ≥ p
, note
c k(1− L−s
n ) p−c
p
≤ δ1 < δ2 ≤ 1, there must be δ2 − δ1 ≤ 1 − pc , so that 1 − pc ≥ p
, i.e., k ≤ 1− L−s
(i.e., there is
n
p−c ∂ΠD
C (δ1 ,δ2 )
2
2p (δ1 −δ2 )
no equilibrium in this case if k > 1− L−s
.). Because ∂δ2
= k
< 0, ΠD
C (δ1 , δ2 ) decreases
n
in δ2 , so
k(1− L−s k(1− L−s
(
n ) n )
δ1 + , if δ1 < 1 − ,
δ2∗ (δ1 ) = p p
k(1− L−s
(A.37)
n )
1, if δ1 ≥ 1 − p
.
Substituting δ2∗ (δ1 ) into ΠD
C (δ1 , δ2 ) yields
k(1− L−s
(
n )
D p(1 − δ1 ) − k(1 − L−s
n
)2 , if δ1 < 1 − p
,
ΠC (δ1 ) = p(1−δ1 )
L−s
k(1− n )
(A.38)
(1 − k )p(1 − δ1 ), if δ1 ≥ 1 − p
.
k(1− L−s
n ) ∗ c+k(1− L−s
n )
If δ1 < 1 − p
, ΠD
C (δ1 ) decreases in δ1 , so δ1 =
c
p
and δ2∗ = p
, D
αC = 1 − L−s
n
, ΠD
C =
p − c − k(1 − L−s
n
)2 and UCD = 21 k(1 − L−s
n
)2 .
k(1− L−s
n ) ∂ 2 ΠD
C (δ1 )
2
If δ1 ≥ 1 − p
, ∂δ1
= − 2pk < 0, so ΠD
C (δ1 ) is concave in δ1 . Solving F.O.C. yields
( k n
1 − 2p , if L − s ≤ 2
δ1∗ = k(1− L−s , (A.39)
n ) n
1− p
if L − s > 2
substitute which into ΠD

C (δ1 ) yields
(
k
, if L − s ≤ n2 ,
ΠD
C =
4
(A.40)
k L−s
n
(1 − L−s
n
), if L − s > n2 .
Then we can summarize equilibrium outcomes in this case as follows.


( c , c + k(1− L−s
n )
), 4n2 p−4cn2
if k < 4L2 −8Ln−8Ls+5n 2 +8ns+4s2 ,
∗ ∗ p p p
(δ1 , δ2 ) = k k k(1− L−s ) 4n 2
p−4cn 2
p−c
(A.41)
(1 − , 1 − + n
), if 2 2 2 <k ≤ .
2p 2p p 4L −8Ln−8Ls+5n +8ns+4s 1− L−s
n
and platform profit

4n2 p−4cn2
(
p − c − k(1 − L−s
n
)2 , if k < 4L2 −8Ln−8Ls+5n 2 +8ns+4s2 ,
ΠD
C = k 4n2 p−4cn2 p−c (A.42)
4
, if 4L2 −8Ln−8Ls+5n2 +8ns+4s2 < k ≤ 1− L−s
.
n
• If 1 − L+s
n
≤ α̂ < 1 − L−s
n
, the driver’s utility function of α becomes UCD (α) = (pδ1 − c)(1 − α) · (1 −
R n(1−α̂)−L
F ()d
pδ2 −c−(pδ1 −c)(1− −s n(1−α̂)
R n(1−α̂)−L
F ()d )
−s
n(1−α̂)
) + (pδ2 − c)α − 12 kα2 . Solving F.O.C. yields α∗ (α̂) = k
.
Solving α∗ (α̂) = α̂ yields the optimal peak supply α∗ = α̂ where α̂ is determined by α̂ =
R n(1−α̂)−L R n(1−α̂)−L
F ()d F ()d
pδ2 −c−(pδ1 −c)(1− −s n(1−α̂) ) pδ2 −c−(pδ1 −c)(1− −s n(1−α̂) )
k
. For α̂ = k
, similar with that in Proof of
Lemma 1, it is easy to know LHS and RHS change in opposite directions as α̂ increases. Thus, to
L
pδ2 −c−(pδ1 −c) L+s L+s p(δ2 −δ1 )
ensure an equilibrium exist in this case, there must be k
≥1− n
and k
<

k(1− L+s L
n )+c+(pδ1 −c) L+s k(1− L−s
L−s n )
1− n
, i.e., p
≤ δ2 < δ1 + p
, then the equilibrium target, denoted by
R 1−L−αD
F ()d
pδ2 −c−(pδ1 −c)(1− −s )
1−αD
αD , satisfies αD = k
.
Because it is intractable to solve for equilibrium outcomes in this case, we now identify
the maximum profit the platform will obtain. Note αD solves the implicit equation αD =
R n(1−αD )−L
F ()d
pδ2 −c−(pδ1 −c)(1− −s )
n(1−αD ) pδ2 −c
k
, it is easy to get αD < k
. In addition, the off-peak profit (n(1 −
D
R n(1−αD )−L pδ2 −c
α ) − −s F ())p(1 − δ1 ) < L(p − c), thus the platform profit ΠD
C < L(p − c) + n k p(1 − δ2 ),
p−c p−c
RHS of which does not exceed 4k
(p − c), thus ΠD
C ≤ (p − c)(L + n 4k ).
L+s L L
• If α̂ < 1 − n
, R1 = n(1−α̂)
, the driver’s utility function of α becomes UCD (α) = n(1−α̂)
(1 −
α)(pδ1 − c) + α(pδ2 − c) − 12 kα2 . Solving F.O.C. of UCD (α) with respect to α yields α(α̂) and
√
k+pδ2 −c− (k−pδ2 +c)2 + 4kL
n (pδ1 −c)
letting α(α̂) = α̂ yields the optimal peak supply α∗ = 2k
. To ensure
α∗ to be the equilibrium peak supply in this case, there must be α∗ < 1 − L+s
n
, thus δ2 is
k(1− L+s L
n )+c+(pδ1 −c) L+s
required to satisfy δ2 < . The platform’s profit is Π(δ1 , δ2 ) = Lp(1 − δ1 ) +
√ p
k+pδ2 −c− (k−pδ2 +c)2 + 4kL (pδ1 −c)
n 2k
n
p(1 − δ2 ).
D
We next find
equilibrium outcomes in this
case. Differentiating ΠC (δ1 , δ2 ) with respect to δ1 yields
∂ΠD
C (δ1 ,δ2 ) (δ2 −1)p
∂δ1
= Lp q
4kL(δ1 p−c)
− 1 , which is negative, indicating ΠD
C (δ1 , δ2 ) decreases in δ1 .
n +(c+k−δ2 p)2
c −ckL+c(δ2 −1)np+p(kL−(δ2 −1)δ2 np)
Thus, we substitute δ1 = p
into ΠD D
C (δ1 , δ2 ) yields ΠC (δ2 ) = k
. Solving
F.O.C. yields

 c+k(1− L+s
n ) p−c
, if k ≤ 2(1− L+s ,
δ2 = p+c p
∗
p−c
n ) (A.43)
 , if k > 2(1− L+s ) .
2p
n

(p − c)(n − s) − kn 1 − L+s 2 , if k ≤ p−c

n 2(1− L+s
,
and the platform profit ΠD = n ) . Note, we assume
C
(L + n p−c )(p − c), if k > p−c
.
4k 2(1− L+s
n )
pδ
k> 1− L−s
in base model, to compare with qualification scheme that will be introduced in the
n
pδ
next section, we only focus on different commission rates in this case. Therefore, when k > 1− L−s
,
n
through comparing the platform profit in the above three cases, we can summarize the platform’s
profit in equilibrium is no more than (p − c)(L + n p−c
4k
), i.e., ΠD p−c
C ≤ (p − c)(L + n 4k ).
Qualification Scheme. We now consider the platform uses qualification scheme with the same
commission rate during both periods.
Unqualified (full-time) driver. In a closed system, an unqualified driver’s utility is Uuq (αuq ) =
∗ pδ−c
(pδ − c) · (1 − α) · 0 + (pδ − c) · αuq − 21 kαuq
2
, so that αuq = k
and the driver’s optimal utility is
2
∗ (pδ−c) pδ−c pδ−c
Uuq = 2k
. Hence, the platform’s decision on α0 should be higher than k
, i.e., α0 > k
.

Qualified (full-time) driver. Through the similar procedure in deriving the equilibrium as in
the proof of Proposition 3, we have the equilibrium platform profit


 np(1 − δ), if k ≤ k2 pδ−c
pδ
,
 q
n(1−α )−L
if k2 pδ < k ≤ k3 pδ−c
pδ−c
R
ΠQ
C =
(n − −s 0
q
F ()d)p(1 − δ), pδ
, (A.44)

(L + n pδ−c + 2nL pδ−c )p(1 − δ), if k > k pδ−c ,

k k 3 pδ
R n(1−αq0 )−L 2 (pδ−c)2

where α0q ≥ pδ−c
k
and it is determined by (1 − 1
n −s
F ()d)(pδ − c) − 12 kα0q = 2k
. We
next characterize conditions in which qualification scheme outperforms different commission rates.
When k ≤ k2 pδ−c
pδ
(i.e., δ ≥ ck2
p(k2 −k)
), ΠQ D p−c
C > ΠC requires np(1 − δ) − (p − c)(L + n 4k ) > 0, solving
−nc2 +4ckL+2cnp−4kLp+4knp−np2
which yields δ < 4knp
.
When k2 pδ−c
pδ
< k ≤ k3 pδ−c
pδ
(i.e., p(kck3 −k)
3
≤ δ < p(kck2 −k)
2
), ΠQ
C > (n − s)p(1 − δ), we next find sufficient
Q Q
conditions of ΠC > ΠD D D
C by comparing (n − s)p(1 − δ) with ΠC . Thus, ΠC > ΠC requires (n − s)p(1 −
c2 (−n)+4ckL+2cnp−4kLp+4knp−4kps−np2
δ) − (p − c)(L + n p−c
4k
) > 0, solving which yields δ < 4knp−4kps
.
When k > k3 pδ−c
pδ
(i.e., δ < ck3
p(k3 −k)
), ΠQ D
C > ΠC requires
r
pδ − c pδ − c p−c
(L + n + 2nL )p(1 − δ) − (p − c)(L + n ) > 0, (A.45)
k k 4k
LHS of which is equivalent to F2 (δ), which is defined as follows. Define

2
2(1 − δ)2 Ln(δp − c)

c n(p − c) n(δp − c)
F2 (δ) = − 1− + L − (1 − δ) +L ,
k p 4k k
which can be written as
 
n(p−c)
c 2 2
n 4cn 2
p 2np 1 − pc 4k
+L n2 2
p
2 2
F2 (δ) = δ − 2 − − − 2 −L 
k k2 k k
 
2cn 1 − c n(p−c) n(p−c)
2c 2 2
n 2cn 2
p

c

n(p − c) p 4k
+L 2np 1 − pc 4k
+L
2
+δ  + − 2L 1 − +L + + + 2L
k2 k2 p 4k k k

2cn 1 − c n(p−c)

2cn2 p 2n2 p2

c 2 n(p − c)
2
c

n(p − c) p 4k
+L
3
+δ + − 1− + L + 2L 1 − +L −
k2 k2 p 4k p 4k k
4 2 2 2 2
δ n p c n
− − 2 − L2
k2 k
For the equation of F2 (δ) = 0, we have parameters of this function, i.e.,

n2 p2


 a = − k2
,
2cn2 p 2 2

b = k2 + 2nk2p ,




) n(p−c)
 c
2np(1− p +L

c2 n2 4cn2 p 2 2
4k
− nk2p − L2 ,

c = − k2 − k2 − k
2cn(1− c ) n(p−c) +L 2np(1− c ) n(p−c) +L
2c2 n2 2cn2 p n(p−c)
 c p 4k p 4k
d = k2 + k2 − 2L 1 − p +L + + + 2L2 ,




 4k k k
 2
2 2cn(1− c ) n(p−c) +L
e = − c2 n2 2 + 2L 1 − c
 n(p−c) n(p−c) p 4k
+ L − 1 − pc +L − − L2 .

k p 4k 4k k
(A.46)

Following the procedure of finding roots for a fourth quadratic function, we first derive the following
discriminants of roots properties for F2 (δ) = 0,


 D = 3b2 − 8ac,

E = −b3 + 4abc − 8a2 d,




F = 3b4 + 16a2 c2 − 16ab2 c + 16a2 bd − 64a3 e,



A = D2 − 3F, (A.47)
B = DF − 9E 2 ,





C = F 2 − 3DE 2 ,





∆ = B 2 − 4AC.

We can show that ABC 6= 0 and ∆ > 0, thus F2 (δ) = 0 hasrtwo nonequal realrroots and one pair of
√
D+(z1 )1/3 +(z2 )1/3 2D−((z1 )1/3 +(z2 )1/3 )+2 z
−b− 3 − 3
conjugate virtual roots, where r
two real roots are δ1 = 4a
√ √
r
D+(z1 )1/3 +(z2 )1/3 2D−((z1 )1/3 +(z2 )1/3 )+2 z
−b− 3 + 3 3(−B− B 2 −4AC)
and δ2 = √ 4a
, where z1 = AD + 2
and z2 =
3(−B+ B 2 −4AC)
AD + 2
and z = D2 − D((z1 )1/3 + (z2 )1/3 ) + ((z1 )1/3 + (z2 )1/3 )2 − 3A. In addition, we
2 2 2
d F2 (δ)
show that d2 δ
= − 3n (c−2δp+p)
k2
+ 4Ln(c−p)
k
− 2L2 < 0, indicating F2 (δ) is concave in δ in this case.
Therefore, we summarize that ΠQ D
C > ΠC (i.e., F2 (δ) > 0) when δ ∈ (δ1 , δ2 ).
Therefore, we summarize that ΠQ D

C > ΠC if any one of the following conditions is satisfied
• δ1 < δ < min{δ2 , p(kck3 −k)

3
}, where δ1 , δ2 are two real roots of equation (L + n pδ−c
k
+
q
2nL pδ−c
k
)p(1 − δ) − (p − c)(L + n p−c
4k
) = 0;
2
(−n)+4ckL+2cnp−4kLp+4knp−4kps−np2
• ck3
p(k3 −k)
≤ δ < min{ p(kck2 −k)
2
,c 4knp−4kps
};
2 2
ck2 −nc +4ckL+2cnp−4kLp+4knp−np
• p(k2 −k)
≤δ< 4knp
.
Open System
We now characterize the condition in which the platform is better to adopt prioritization scheme
rather than use different commission rates in an open system.
Different Commission Rates. Given commission rates δ1 during off-peak and δ2 during peak
( pc ≤ δ1 < δ2 < 1), in an open system, a full-time driver’s utility of his work time decision α is
UOD (α) = (pδ1 − c) · (1 − α) · 0 + (pδ2 − c) · α − 12 kα2 , so that the optimal work time during peak
D D pδ2 −c pδ2 −c
(denoted by αO ) is αO = k
, and the platform’s profit is ΠD
O (δ1 , δ2 ) = L · p(1 − δ1 ) + n k · p(1 −
p+c p−c
δ2 ). Hence, in equilibrium, δ1∗ = pc , δ2∗ = 2p
, and ΠD
O = (L + n 4k )(p − c).
Prioritization Scheme. In an open system, prioritized drivers face the same situation as qual-
ified drivers in qualification scheme in a closed system, but there are some differences from the
perspective of platform. Following the same analysis in Proof of Lemma 6, platform’s equilibrium
profit  q
pδ−c


 (L + n k
(2 − pδ−c
k
))p(1 − δ) if k ≤ k2 pδ−c
pδ
q
P
ΠO = (L + nα0 )p(1 − δ) if k2 pδ−c
pδ
< k ≤ k3 pδ−c
pδ
, (A.48)
 q
(L + n pδ−c + 2nL pδ−c )p(1 − δ)

if k > k3 pδ−c
k k pδ

R n(1−αq0 )−L 2 (pδ−c)2

where α0q > pδ−c
k
and is determined by (1 − −s
F ()d)(pδ − c) − 12 kα0q = 2k
. Similarly,
we next characterize the conditions when prioritization scheme outperforms different commission
rates in an open system. Note when k > k3 pδ−c
pδ
, platform has the same profit as in qualification
scheme, so that we get the same sufficient conditions as that in proof of Proposition 4. In other
two cases, because ΠPO > ΠQ Q
O = ΠC , thus the conditions derived in proof of Proposition 4 also hold
in this case.
B Capped Peak Period

Note that the target supply is only attainable if it does not exceed the length of peak period,
otherwise no drivers are able to meet the qualification/prioritization criteria. In the main model,
we have an underlying assumption that the daily peak period is considerably long so that the
platform can always set the target as the global optimal solution under either scheme. However,
in reality, the rush hour occupies a limited fraction of an entire day, though the certain value
may be different from region to region. For example, the traffic rush of big cities, like Shanghai,
Shenzhen, Beijing, etc., usually runs from 7 a.m. to 10 a.m. (morning peak) and from 5 p.m. to 8
p.m. (afternoon peak). Smaller cities experience even less rush hours per day. In the following, we
relax the assumption and consider how a capped peak period within a day alters the platform’s
B
adoption preference over the two schemes and drivers’ problems. Let ᾱ (αC ≤ ᾱ < 1) denote the
fraction of peak period within a day. The reason for adding such a constraint on ᾱ is, in either
closed system or open system without any incentive scheme, drivers’ supply during peak should
not exceed the length of peak period ᾱ, otherwise it is meaningless to shift supply to peak hours
(through the two proposed schemes). In the following, we capture how ᾱ impact our equilibrium
states and the platform’s choice over the two schemes.
We start from a closed system. Recall that the optimal target work time for peak hours are
α0Q and α0P (≤ α0Q ) under qualification scheme and prioritization scheme respectively, the daily
L−s L+s
peak period ᾱ may have three distribution intervals, ᾱ ≥ 1 − n
(long peak ), 1 − n
≤ ᾱ <
L−s L+s
1− n
(intermediate peak ), and ᾱ < 1 − n
(short peak ). In case of short peak, the target
is constrained within the case α0 < 1 − L+s n
, in which case in equilibrium MCQ = MCP = L + n ·
q
min{ pδ
k
+ 2 Ln pδ
k
, ᾱ}, it is thus the same to use either scheme. In case of intermediate peak, MCQ =
q p
 
n − R n(1−min{α0 ,ᾱ})−L F ()d, if k ≤ k3 n − R n(1−min{α0 ,ᾱ})−L F ()d, if k ≤ k3
−s −s
q and MCP = q ,
L + n pδ + 2nL pδ , if k > k3
 L + n pδ
+ 2nL pδ , if k > k3
k k k k
using qualification scheme is now worse than using prioritization scheme. In case of long peak, as we
discussed in base model, the platform should implement qualification scheme. Hence, qualification
scheme weakly dominates prioritization scheme in a closed system.
We now look at an open system. It is worth nothing that qualification scheme plays
the same role in a closed system or an open system. Furthermore, it is also equivalent

to adopt prioritization scheme in an open system and qualification scheme in a closed

L+s L+s
system when α0 ≤ 1 − n
. Thus, as long as ᾱ ≤ 1 − n
, i.e., in case of short peak,
the two schemes are essentially the same in an open system. In case of intermediate
( q
 R n(1−min{αq0 ,ᾱ}−L
{α0 , ᾱ}, if k ≤ k3
L + n · minq  n − −s F ()d, if k ≤ k3
peak, MOP = pδ pδ
and MOQ = pδ
q
pδ
;
L + n k + 2nL k , if k ≥ k3 L + n + 2nL ,
k k
if k ≥ k3
 q
pδ


 L + n · min { k
(2 − pδ
k
), ᾱ}, if k ≤ k2
and in case of long peak, MOP = L + nα0q , q if k2 < k ≤ k3 and MOQ =


if k ≥ k3
 k k

n, if k ≤ k2
 R n(1−αq0 )−L
n − −s F ()d, if k2 < k ≤ k3 , it is easy to get MOP ≥ MOQ . Hence, prioritization scheme
 q

if k ≥ k3
k k
weakly dominates qualification scheme in an open system. Therefore, our main results are robust
and hold true with any capped peak period.

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Balancing Supply with Demand in Ride-hailing

Platforms: An Operational Approach

Electronic copy available at: https://ssrn.com/abstract=3851162

Electronic copy available at: https://ssrn.com/abstract=3851162

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3.3. Platform, Incentive Schemes, and System Openness

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Table 1 Summary of Notation

Platform’s decision α0 Target workload during peak hours, α0 ∈ (0, 1)

Full-time driver’s decision α Workload during peak hours, α ∈ (0, 1)

Endogenous parameter θ Proportion of qualified/prioritized (full-time) drivers

Subscripts q/uq Qualified/unqualified (full-time) drivers

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Lemma 1 (Closed System: Benchmark). In a closed system, when no incentive scheme is

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• The platform’s expected matching volume, denoted by MCB , is given as

4.2. Qualification Scheme

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The platform’s problem can be formulated as

max M Q (θ(α0 )), (7)

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• The platform’s optimal choice of working target, denoted by α0Q , is given as

• The platform’s expected matching volume, denoted by MCQ , is given as

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4.3. Prioritization Scheme

the details of which are relegated in the Appendix.

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where αpP = α0 , and αup

max M P (θ; α0 ), (13)

s.t. Uup ≤ Up (αp ) with the constraint binding if θ < 1. (14)

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4.4. Comparisons in a Closed System

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5.2. Qualification Scheme

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5.3. Prioritization Scheme

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5.4. Comparisons in an Open System

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6. Extension: Different Commission Rates

6.1. Closed System

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R n(1−αq0 )−L 2 (pδ−c)2

qualification scheme (ΠQ

tion scheme outperforms different commission rates, as stated in Proposition 4.

Proposition 4 (Closed System: Qualification Scheme versus Different Commission Rates).

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6.2. Open System

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(a) Closed System: Qualification Scheme versus Different Commission Rates

(b) Open System: Prioritization Scheme versus Different Commission Rates

R n(1−αp0 )−L F ()d