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Frictions in a Competitive, Regulated Market: Evidence from Taxis

Author

Listed:
  • Guillaume R. Fréchette
  • Alessandro Lizzeri
  • Tobias Salz

Abstract

This paper presents a dynamic general 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. This 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.

Suggested Citation

  • Guillaume R. Fréchette & Alessandro Lizzeri & Tobias Salz, 2018. "Frictions in a Competitive, Regulated Market: Evidence from Taxis," NBER Working Papers 24921, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24921
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    More about this item

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • L0 - Industrial Organization - - General
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

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