Competition in Ride-Hailing Markets
30 Pages Posted: 9 Oct 2019 Last revised: 24 Feb 2020
Date Written: September 29, 2019
We present a model for competition between ride-hailing platforms. Riders choose a platform to maximize their utility which is decreasing in price and waiting time. Drivers can accept ride requests from both platforms. Platforms compete via prices over riders and drivers. We investigate whether competition leads to market failure in the form of the ``tragedy of the commons'' as platforms deplete the shared resource of open cars. Our theoretical analysis shows that in all equilibria, riders and drivers will use both platforms and prices will be equal; market failure is a possibility, but under certain conditions, the possibility of rapid deterioration of market throughput deters the platforms from undercutting each other's prices and gives rise to high-throughput equilibria. This result is also supported by numerical analysis, using parameters estimated from Uber data, and simulations. We observe that if riders are not very sensitive to waiting times, the loss of efficiency due to competition could be small.
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