Should On-Demand Ride Services Be Regulated? An Analysis of Chinese Government Policies

49 Pages Posted: 22 Jun 2017 Last revised: 21 Dec 2017

See all articles by Jiayi Joey Yu

Jiayi Joey Yu

Tsinghua University - Department of Industrial Engineering; University of California, Los Angeles (UCLA) - Anderson School of Management

Christopher S. Tang

University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area

Zuo-Jun Max Shen

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR)

Xiqun Chen

Zhejiang University

Date Written: June 16, 2017

Abstract

On-demand ride services (e.g., Uber) receive praises from consumers and investors. However, governments in the United States and Europe are challenging these innovative services by raising legal concerns over labor laws, unfair pricing, and consumer safety. At the same time, the Chinese government is facing a dilemma. On one hand, the Chinese government wants to support these innovative startups as examples of its ``mass entrepreneurship and innovation'' initiative launched in 2015. On the other hand, the Chinese government needs to ensure the survival of the traditional taxi industry that supports millions of taxi drivers. Facing with this dilemma, we develop a two-period dynamic game that captures the strategic interactions of multiple stakeholders (i.e., the government, an on-demand ride service company, independent drivers, taxi drivers, and passengers). Our analysis reveals that, without government regulation, the on-demand ride service platform can drive the traditional taxi industry out of the market. Also, relative to no regulation and complete ban, we show that the Chinese government's new regulatory framework provides a better balance of multiple objectives (e.g., business and job creation, viability of taxi service, consumer welfare, environmental and traffic issues, and labor welfare) across multiple stakeholders. Also, by adopting a unified modeling framework, we find that the government's optimal policy that maximizes the total social welfare depends on the taxi's price and the relative emphasis that the government places on multiple stakeholders. Particularly, our model provides a justification for the Chinese government's new regulations: imposing some basic regulations is a balanced approach to support the new business and to ensure the sustainability of the traditional industry.

Keywords: On-demand ride services, socially responsible operations, innovative business models, public policy, consumer welfare, social welfare

JEL Classification: L52, L98, O38

Suggested Citation

Yu, Jiayi and Tang, Christopher S. and Shen, Zuo-Jun Max and Chen, Xiqun, Should On-Demand Ride Services Be Regulated? An Analysis of Chinese Government Policies (June 16, 2017). Available at SSRN: https://ssrn.com/abstract=2990209 or http://dx.doi.org/10.2139/ssrn.2990209

Jiayi Yu (Contact Author)

Tsinghua University - Department of Industrial Engineering ( email )

Beijing
China

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Christopher S. Tang

University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://www.anderson.ucla.edu/x980.xml

Zuo-Jun Max Shen

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR) ( email )

IEOR Department
4135 Etcheverry Hall
Berkeley, CA 94720
United States

Xiqun Chen

Zhejiang University ( email )

38 Zheda Road
Hangzhou, Zhejiang 310058
China

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