On-demand service delivery under asymmetric information: Priority pricing, market selection, and horizontal substitution

For on-demand service platforms in general (including food, grocery, and fresh-product delivery platforms) and, in particular, shared-mobility service systems, customers are plausibly heterogeneous in their private delay sensitivity and preference for products. This paper develops incentive contracts with substitution or non-substitution strategies, consisting of steady-state scheduling rules, probabilistic routing policies, binary admission controls and pricing strategies, to maximize platforms’ revenue. Furthermore, we analyze the influence of information structures on the design of the incentive contract and find that if the horizontal preference is observable, the service provider should pay information rent to patient customers. However, if the delay sensitivity is observable, the first-best result continues to be optimal.