Matching and Network Effects in Ride-Hailing
AbstractA 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.
CitationCastillo, Juan Camilo, and Shreya Mathur. 2023. "Matching and Network Effects in Ride-Hailing." AEA Papers and Proceedings, 113: 244-47. DOI: 10.1257/pandp.20231069
- C78 Bargaining Theory; Matching Theory
- D62 Externalities
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D85 Network Formation and Analysis: Theory
- L83 Sports; Gambling; Restaurants; Recreation; Tourism