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Matching and Network Effects in Ride-Hailing

Author

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  • Juan Camilo Castillo
  • Shreya Mathur

Abstract

A recent empirical literature models search and matching frictions by means of a reduced-form matching function. An alternative approach is to simulate the matching process directly. In this paper, we follow the latter approach to model matching in ride-hailing. We compute the matching function implied by the matching process. It exhibits increasing returns to scale, and it does not resemble the commonly used Cobb-Douglas functional form. We then use this matching function to quantify network externalities. A subsidy on the order of $2 per trip is needed to correct for these externalities and induce the market to operate efficiently.

Suggested Citation

  • Juan Camilo Castillo & Shreya Mathur, 2023. "Matching and Network Effects in Ride-Hailing," AEA Papers and Proceedings, American Economic Association, vol. 113, pages 244-247, May.
    • Handle: RePEc:aea:apandp:v:113:y:2023:p:244-47
    DOI: 10.1257/pandp.20231069
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    References listed on IDEAS

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    1. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-1672, September.
    2. Ricardo Lagos, 2003. "An Analysis of the Market for Taxicab Rides in New York City," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 423-434, May.
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    Cited by:

    1. Rubing Li & Xiao Liu & Arun Sundararajan, 2026. "Platform Design, Earnings Transparency and Minimum Wage Policies: Evidence from A Natural Experiment on Lyft," Papers 2602.08955, arXiv.org, revised Feb 2026.

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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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