Capturing the Benefits of Autonomous Vehicles in Ride-Hailing: The Role of Market Configuration

125 Pages Posted: 18 Nov 2020 Last revised: 24 Aug 2023

Date Written: August 23, 2023

Abstract

We develop an economic model of autonomous vehicle (AV) ride-hailing markets in which uncertain
aggregate demand is served with a combination of a fixed fleet of AVs and an unlimited potential supply of human drivers (HVs). Dispatch efficiencies increase with scale due to density effects. We analyze market outcomes in this setting under four market configurations, including two dispatch platform structures (common platform vs. independent platforms) and two levels of supply competition (monopoly AV vs. competitive AV). A key result of our analysis is that the lower cost of AVs does not necessarily translate into lower prices; the price impact of AVs is ambiguous and depends critically on both the dispatch platform structure and the level of AV supply competition. In the extreme case, we show if AVs and HVs operate on independent dispatch platforms, there is a monopoly AV supplier and labor supply elasticity is high, then prices are even higher than in a pure HV market. Indeed, to guarantee consistently lower prices (relative to a pure-HV market) in all scenarios and under all supply and density elasticities, a common dispatch platform between AVs and HVs is required; furthermore, competitive AVs lead to lower prices than monopoly AVs in every such scenario. Our results illustrate the critical role market configuration plays in realizing potential welfare gains from AVs.

Keywords: Autonomous vehicle, market design, smart city transportation

JEL Classification: R40, D40, D50, D60

Suggested Citation

Lian, Zhen and van Ryzin, Garrett, Capturing the Benefits of Autonomous Vehicles in Ride-Hailing: The Role of Market Configuration (August 23, 2023). Available at SSRN: https://ssrn.com/abstract=3716491 or http://dx.doi.org/10.2139/ssrn.3716491

Zhen Lian (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

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