Question

Taxi-drivers are now faced with competition from ridesharing services like Uber and Lyft. Assume that consumers see traditional taxis and ridesharing services as perfect substitutes. Assume that there are no barriers to entry to become a ridesharing driver. What will happen to supply and demand for traditional taxi-services in the long run? What will happen to the price consumers pay, the price taxi-drivers receive, deadweight loss and profits of taxi-drivers? And in short run? What if ridesharing services and traditional taxis are complements?

Answer 1

The rise of the so-called " sharing economy " has created new competition across a number of industries, most notably hotels, through Airbnb, and taxis, through ride-sharing services like Uber, Lyft, and Sidecar. This paper explores the competitive effects of ride-sharing on the taxi industry using a detailed dataset from the New York City Taxi and Limousine Commission of over a billion NYC taxi rides, taxi complaints from New York and Chicago, and information from Google Trends on the popularity of the largest ride-sharing service, Uber. I find that controlling for underlying trends and weather conditions that might affect taxi service, Uber's increasing popularity is associated with a decline in consumer complaints per trip about taxis in New York. In Chicago, Uber's growth is associated with a decline in particular types of complaints about taxis, including broken credit card machines, air conditioning and heating, rudeness, and talking on cell phones. While the data do not make it possible to derive the magnitude of the effects or calculate changes in consumer surplus, the results provide evidence that Uber has created an alternative for consumers who would have otherwise complained to the regulator and encouraged taxis to improve their own service in response to the new competition.

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