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Frictions in a Competitive, Regulated Market: Evidence from Taxis

Author

Listed:
  • Guillaume R. Fréchette
  • Alessandro Lizzeri
  • Tobias Salz

Abstract

This paper presents a dynamic equilibrium model of a taxi market. The model is estimated using data from New York City yellow cabs. Two salient features by which most taxi markets deviate from the efficient market ideal are, first, matching frictions created by the need for both market sides to physically search for trading partners, and second, regulatory limitations to entry. To assess the importance of these features, we use the model to simulate the effect of changes in entry, alternative matching technologies, and different market density. We use the geographical features of the matching process to back out unobserved demand through a matching simulation. The matching function exhibits increasing returns to scale, which is important to understand the impact of changes in this market and has welfare implications. For instance, although alternative dispatch platforms can be more efficient than street-hailing, platform competition is harmful because it reduces effective density.

Suggested Citation

  • Guillaume R. Fréchette & Alessandro Lizzeri & Tobias Salz, 2019. "Frictions in a Competitive, Regulated Market: Evidence from Taxis," American Economic Review, American Economic Association, vol. 109(8), pages 2954-2992, August.
    • Handle: RePEc:aea:aecrev:v:109:y:2019:i:8:p:2954-92
    Note: DOI: 10.1257/aer.20161720
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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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