Disruptive Competition and the Cost of Leveling the Playing Field: Evidence from the Taxi Industry
67 Pages Posted: 12 Apr 2021 Last revised: 28 May 2021
Date Written: April 12, 2021
I study the effects of a tax on ride-sharing trips in Chicago, which was nominally motivated by a desire to reduce congestion, but which also affected competition between ride-sharing platforms and traditional taxis. I find that platforms passed through more than 100% of the tax to consumers taking single rides, but there was incomplete pass-through to shared rides. This pattern can be explained by the two-sidedness of the market. The tax shifted demand back to taxis, but only in the downtown area, where competition is more intense. Finally, I find that the tax did not significantly reduce congestion and a simple calibration suggests that it lowered consumer surplus by over $300,000 per day.
Keywords: Disruptive Competition, Regulation, Tax Incidence, Two-sided Platforms, Ride-sharing
JEL Classification: H22, K23, L92, L98, R48
Suggested Citation: Suggested Citation