Price, Wage and Fixed Commission in On-Demand Matching

Motivated by the emerging sharing economy, we study an on-demand matching platform which crowdsources a service from independent suppliers and sells it to customers. The platform offers a wage to the supply side and charges a price to the demand side. We consider a set of market conditions, under each of which the volume of participating demand and supply depends jointly on the price and the wage. We study the performance of the widely practiced, flat, across-the-board commission contracts, under which the platform takes a fixed cut, and thus the wage is equal to a fraction of the price, regardless of what price is charged. Under a mild condition, we show that by using the optimal flat-commission contract, the platform achieves at least 75% of the optimal profit when there is no pre-committed relationship between the price and wage that leads to tying hands in responding to varying supply and demand conditions. We also study a number of extensions, such as an alternative objective function that jointly considers the profit and matching volume, the piecewise commission contract, and the impact of enforcing a minimum wage.