Frictions in a Competitive, Regulated Market: Evidence from Taxis
American Economic Review
vol. 109,
no. 8, August 2019
(pp. 2954-92)
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.Citation
Fréchette, Guillaume R., Alessandro Lizzeri, and Tobias Salz. 2019. "Frictions in a Competitive, Regulated Market: Evidence from Taxis." American Economic Review, 109 (8): 2954-92. DOI: 10.1257/aer.20161720Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- L51 Economics of Regulation
- L84 Personal, Professional, and Business Services
- L92 Railroads and Other Surface Transportation
- L98 Industry Studies: Utilities and Transportation: Government Policy
- R48 Transportation Economics: Government Pricing and Policy