Regulating the ride-hailing market in the age of uberization

Abstract

The entry of transportation network companies like Uber and Lyft in the ride-hailing market has generated concerns that they unfairly compete against traditional street-hail services. However, regulatory action seeking to address this issue has either been lacking or has resulted in the suspension or restriction of e-hail services. In this paper, we propose a model of competition between these two services and investigate the design of optimal and parsimonious regulation to achieve social efficiency. When the e-hailing platform adopts instantaneous matching with a relatively large matching radius, we analytically show that, absent restrictions, the street-hailing firm has a pricing advantage and can thrive when competing against the e-hailing platform in dense markets or when trip distances are relatively short. Moreover, while a monopolist controlling both firms will tend to internalize some of its congestion externality, we show that congestion can become quite severe in a duopoly setting. However, we show that even when accounting for competition and congestion, regulators only need to regulate the per trip commission that each company earns to maximize social surplus. This provides a potential avenue to simplify the host of regulations, which have historically been a feature of the ride-hailing market and are currently hampering the street-hailing industry.