An Efficiency Paradox of Uberization

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.