Frictions in a Competitive, Regulated Market: Evidence from Taxis

65 Pages Posted: 22 Aug 2018

See all articles by Guillaume R. Frechette

Guillaume R. Frechette

New York University (NYU) - Department of Economics

Alessandro Lizzeri

Princeton University - Department of Economics

Tobias Salz

MIT

Multiple version iconThere are 3 versions of this paper

Date Written: August 2018

Abstract

This paper presents a dynamic general equilibrium model of a taxi market. The model is estimated using data from New York City yellow cabs. Two salient features by which most taxi markets deviate from the efficient market ideal are, first, matching frictions created by the need for both market sides to physically search for trading partners, and second, regulatory limitations to entry. To assess the importance of these features, we use the model to simulate the effect of changes in entry, alternative matching technologies, and different market density. We use the geographical features of the matching process to back out unobserved demand through a matching simulation. This function exhibits increasing returns to scale, which is important to understand the impact of changes in this market and has welfare implications. For instance, although alternative dispatch platforms can be more efficient than street-hailing, platform competition is harmful because it reduces effective density.

Suggested Citation

Frechette, Guillaume R. and Lizzeri, Alessandro and Salz, Tobias, Frictions in a Competitive, Regulated Market: Evidence from Taxis (August 2018). NBER Working Paper No. w24921, Available at SSRN: https://ssrn.com/abstract=3236726

Guillaume R. Frechette (Contact Author)

New York University (NYU) - Department of Economics ( email )

19 West Fourth St., 6th floor
New York, NY 10012
United States

HOME PAGE: http://https://files.nyu.edu/gf35/public/html/econ.htm

Alessandro Lizzeri

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States
08544 (Fax)

Tobias Salz

MIT ( email )

50 Memorial Dr
Cambridge, MA 02142
United States

HOME PAGE: http://https://economics.mit.edu/faculty/tsalz

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