An Efficiency Paradox of Uberization

34 Pages Posted: 14 Oct 2019 Last revised: 15 Oct 2019

See all articles by Kenan Zhang

Kenan Zhang

affiliation not provided to SSRN

Hongyu Chen

affiliation not provided to SSRN

Song Yao

Washington University in St. Louis - John M. Olin Business School

Linli Xu

University of Minnesota - Twin Cities - Carlson School of Management

Jiaoju Ge

affiliation not provided to SSRN

Xiaobo Liu

Southwest Jiaotong University

Marco Nie

Northwestern University

Date Written: October 13, 2019

Abstract

Uberization promises to transform society based on an intuitive proposition: Advanced peer-to-peer matching guarantees greater overall efficiency. Here we show a paradox challenging this proposition in uberized ride-hail service, known as e-hail. By analyzing hundreds of local markets in Shenzhen, China, we discover e-hail is outperformed—in terms of wait time and trip production—by taxis hailed off street in areas with high densities of passengers and drivers. This paradox arises because a quicker match does not always expedite and enhance a service. On the contrary, it can induce competition that undermines the network effect, making a passenger less likely to benefit from more drivers, and vice versa, in e-hail than in taxi service. Consequently, simply attracting more users may not improve e-hail’s efficiency (defined as trip production at a given density of passengers and drivers), because its competitive edge diminishes with scale. The finding implies uberization has a limited impact on efficiency and is unlikely to create a “winner-take-all” in transportation.

Suggested Citation

Zhang, Kenan and Chen, Hongyu and Yao, Song and Xu, Linli and Ge, Jiaoju and Liu, Xiaobo and Nie, Marco, An Efficiency Paradox of Uberization (October 13, 2019). Available at SSRN: https://ssrn.com/abstract=3462912 or http://dx.doi.org/10.2139/ssrn.3462912

Kenan Zhang

affiliation not provided to SSRN

Hongyu Chen

affiliation not provided to SSRN

Song Yao

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

HOME PAGE: http://www.songyao.org

Linli Xu

University of Minnesota - Twin Cities - Carlson School of Management ( email )

321 - 19th Avenue South
Minneapolis, MN 55455
United States

Jiaoju Ge

affiliation not provided to SSRN

Xiaobo Liu

Southwest Jiaotong University ( email )

Chengdu, Sichuan
China

Marco Nie (Contact Author)

Northwestern University ( email )

2145 Sheridan Road
Evanston, IL 60208-1230
United States

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