Minimum Earnings Regulation and the Stability of Marketplaces
18 Pages Posted: 17 Dec 2019 Last revised: 15 Jan 2020
Date Written: December 13, 2019
We build a model to study the implications of utilization-based minimum earning regulations of the kind recently enacted by New York City for its ride-hailing providers. We identify the precise conditions under which a utilization-based minimum earnings rule causes marketplace instability, where stability is defined as the ability of platforms to keep wages bounded while maintaining the current flexible (free-entry) work model. We also calibrate our model using publicly available data, showing the limited power of the law to increase earnings within an open marketplace. We argue that affected ride-hailing companies might respond to the law by reducing driver flexibility.
Keywords: ride-hailing, ridesharing, market design
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