The Effect of Autonomous Vehicles on Consumer Welfare in Ride-Hailing Markets

Abstract

Ride-hailing and shared-mobility markets, matching drivers with customers via an APP, have been rising in popularity in recent years, while the emergence of Autonomous Vehicles (AVs) promises to revolutionize urban mobility. In this paper, we research the implications for operators, policymakers, and consumer welfare of introducing fleets of autonomous vehicles (AVs) into a ride-hailing system and thus replacing the driver side. Unlike existing research, we propose a comparative model between non-AV and AV mobility markets with single- and dual-demand levels and introduce four market cases (1) with drivers, (2) with AV fleets provided by a for-profit operator, (3) AV fleets provided by a public sector operator maximizing transportation throughput and (4) AV fleets provided by a public sector operator maximizing consumer surplus. By comparing the first and second case we highlight the implications of switching to AVs in today's setting, while the third and fourth cases evaluate the possible welfare benefits of introducing AVs under a public non-profit operator scheme. Through numerical studies, we assess the performance of all market cases in regard to the achieved consumer welfare as subject to the realized number of trips and prices of a system. Our results highlight that a shift from today’s non-AV to an AV system lowers overall consumer welfare. More precisely, we show that privately operated AV systems are less capable to adjust to fluctuations in mobility demand than non-AV systems because of their fixed fleet size of AVs. Further, a public operated AV system with the aim to maximize the number of trips, would not increase overall consumer welfare compared to a privately operated AV system, whereas a public operator maximizing consumer surplus would. However, such a public operator maximizing consumer surplus would only be able to serve a smaller number of trips and thus be limited to being a complementary service within an existing transportation network.