Taxis on Ride-Hailing Platforms: Managing On-Demand Urban Mobility Ecosystems

Abstract

Problem definition: Partnerships between on-demand ride-hailing platforms and traditional taxi companies allow platforms to expand their supply of service capacity and improve service quality while providing taxi drivers access to a new demand stream. We study these partnerships from the perspective of a regulator and evaluate how they should be managed. The arrival of on-demand ride-hailing platforms resulted in challenges for local and national governments tasked with regulating relations between these newcomers and incumbent taxi services. Current regulatory approaches vary from strong encouragement of taxi drivers' participation in platform-based service delivery to an equally strong drive to separate street-hailing and platform-based services. Given these diverse regulatory stances, we explore a natural question about conditions that favor each specific approach.

Methodology: We develop a parsimonious game-theoretical model of a government-regulated urban transportation system. In our model, the consumers of transportation services are sensitive to both price and service delays. There are two distinct groups of service providers: taxi drivers who can use both street-hailing and platform-based modes of service delivery and private car drivers who can serve consumers only via the platform. The platform controls the service fee and driver wages for platform-based services, and the government regulates the fee for street-hailing services and the taxi drivers' level of access to platform-based riding requests.

Managerial implications: In the absence of pressure to preserve street hailing, the optimal regulatory stance is to grant taxi drivers either "full" or "partial" access to platform-based requests. However, in settings where some degree of reliance on street hailing is present, the government should exercise a measured control over taxi drivers' access to platform-based requests if the number of private car drivers and the pressure to preserve street hailing are both low. In all other settings, the government should limit taxi drivers to exclusively serving street-hailing requests, thus separating two driver pools.

Keywords: On-demand ride services, government regulation, game theory