Regulating ridesourcing services with product differentiation and congestion externality. (June 2021)

• Record Type: Journal Article
• Authors: Vignon, Daniel A.; Yin, Yafeng; Ke, Jintao
• Is Part Of: Transportation research. Volume 127(2021)
• Publication Date: 2021-06
• Subjects: Ridesourcing service -- Regulation -- Pooling -- Congestion externality -- Commission cap -- Congestion toll; Transportation -- Periodicals; Transportation -- Technological innovations -- Periodicals; 388.011
• DOI: 10.1016/j.trc.2021.103088
• Languages: English
• ISSNs: 0968-090X

Abstract

Highlights: Ridesourcing services have contributed to an increase in congestion in some metropolitan cities. This paper proposes a model of the ridesourcing market in the presence of congestion externality. The model incorporates both a pooling and a solo service and their impact on congestion. A commission cap and a toll are effective in regulating the market and achieving a socially desirable outcome. Abstract: This paper proposes a model of the ridesourcing market in presence of traffic congestion and with the provision of both solo and pooling services. Our analysis of the first-best solution shows that, under a highly congested scenario, the ridesourcing platform may enjoy non-negative profits. However, when congestion is low, the ridesourcing market must be subsidized due to low marginal costs of operation. This mirrors previous findings in the traditional taxi literature. We also demonstrate that a commission cap on the solo service combined with a congestion toll (however small) on ridesourcing vehicles can induce any desired, sustainable equilibrium under the assumption of homogeneous value of travel time and sufficient supply of homogeneous drivers. Furthermore, numerical experiments suggest that the most important problem that a regulator should address when faced with a monopoly may not be that of congestion but rather that of market power. Indeed, when congestion is high, similar to previous findings in the literature, decisions by the monopolist tend to mirror that of the regulator. This is because customers on the platform must also bear the congestion cost, which hurts the platform's revenues. Additionally, numerical examples reveal that, even when accounting for heterogeneity in the value of travel time, the commission cap is able to achieve the second-best–whether combined with a toll or not. This confirms the effectiveness of the commission cap strategy illustrated in previous literature and provides decision makers with a simple, non-intrusive mechanism for regulating the market.