On-demand ride-hailing platforms in competition with the taxi industry: Pricing strategies and government supervision

Abstract

We consider the case where a large-scale entry of ride-hailing vehicles have significant impacts on the taxi market, which may result in many taxi drivers being forced to withdraw from the transport industry or promote the development of the whole transport industry. Specifically, we examine how an on-demand ride-hailing platform in competition with the traditional taxi industry designs its pricing strategies under the unregulated and regulated pricing scenarios, and we focus on government supervision strategies in the transport industry in view of the development of on-demand ride-hailing platforms and their impacts on both society and the traditional taxi industry. We find that the monopolistic on-demand ride-hailing platform's price rate and profit under the unregulated pricing scenario are relatively higher than those under the regulated pricing scenario. We also find that the government should encourage competition between on-demand ride-hailing platforms and the traditional taxi industry. In addition, the government's regulatory measures should depend on its situation and its degrees of attention to various stakeholders because the adjustment effects of the regulatory measures are different. When the taxi supply is less than customer demand, increasing the total number of taxis is the best regulatory measure, but when the taxi supply exceeds customer demand, the best regulatory measure depends on the specific situation. This suggests that the government should adopt pertinent supervisory policies to maximize the overall social welfare and profit based on the actual situation it is in.