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Demand and Consumer Surplus in the On-Demand Economy: The Case of Ride Sharing

50 Pages Posted: 7 Jul 2017 Last revised: 12 Oct 2017

Chungsang Tom Lam

Clemson University - John E. Walker Department of Economics

Meng Liu

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: October 11, 2017

Abstract

How is economic value created by on-demand ride-sharing platforms? We exploit granular data on dynamic pricing and wait time on Uber and Lyft at type-route-time level, and public data on taxi and public transit in New York City. We estimate a discrete-choice demand model that allows substitution among transportation modes. Counterfactual analyses show three main findings. First, platform users gain 72 cents per dollar spent on these platforms. Second, welfare gains are disproportionately higher in locations and times that have been underserved by taxis and public transit. Third, we estimate that 64% of welfare gains come from dynamic pricing used by these platforms.

Keywords: Sharing Economy, On-demand Economy, Demand Estimation, Dynamic Pricing, Consumer Surplus

JEL Classification: L10, L91, D40, D60, O33

Suggested Citation

Lam, Chungsang Tom and Liu, Meng, Demand and Consumer Surplus in the On-Demand Economy: The Case of Ride Sharing (October 11, 2017). Available at SSRN: https://ssrn.com/abstract=2997190

Chungsang Lam

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

Meng Liu (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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