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Spatial Equilibrium, Search Frictions, and Dynamic Efficiency in the Taxi Industry
[Search frictions and market power in negotiated-price markets]

Author

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  • Nicholas Buchholz

Abstract

This article analyses the dynamic spatial equilibrium of taxicabs and shows how common taxi regulations lead to substantial inefficiencies as a result of search frictions and mis-allocation. To analyse the role of regulation on frictions and efficiency, I pose a dynamic model of spatial search and matching between taxis and passengers. Using a comprehensive dataset of New York City yellow medallion taxis, I use this model to compute the equilibrium spatial distribution of vacant taxis and estimate intraday demand given price and medallion regulations. My estimates show that the weekday New York market achieves about 5.7 million in daily welfare or about 27 per trip, but an additional 53 thousand customers fail to find cabs due to search frictions. Counterfactual analysis shows that implementing simple tariff pricing changes can enhance allocative efficiency and expand the market, offering daily consumer surplus gains of up to 227 thousand and up to 49 thousand additional daily taxi-passenger matches, a similar magnitude to the gain in matches generated by adopting a perfect static matching technology.

Suggested Citation

  • Nicholas Buchholz, 2022. "Spatial Equilibrium, Search Frictions, and Dynamic Efficiency in the Taxi Industry [Search frictions and market power in negotiated-price markets]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(2), pages 556-591.
    • Handle: RePEc:oup:restud:v:89:y:2022:i:2:p:556-591.
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    File URL: http://hdl.handle.net/10.1093/restud/rdab050
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    Cited by:

    1. Ron Yang, 2022. "(Don’t) Take Me Home: Home Preference and the Effect of Self-Driving Trucks on Interstate Trade," NBER Chapters, in: Economics of Artificial Intelligence, National Bureau of Economic Research, Inc.
    2. Lehe, Lewis & Pandey, Ayush, 2022. "Taxi service with heterogeneous drivers and a competitive medallion market," Journal of Urban Economics, Elsevier, vol. 131(C).

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