In recent years the ride service industry has been evolving rapidly, driven by disruptive technologies such as mobile apps, AI, and autonomous vehicles (AVs). While platform-based decentralized ride hailing companies have gained significant market share, vertically-integrated robotaxi services using emerging AVs are starting to enter the market. In this paper, we aim to provide insights about the evolution and the future of ride services studying these two competing business approaches. We find that in many cases in larger markets the ride-hailing firm surprisingly gains the upper hand in competition, having higher market share and profits as well as lower service delays and higher prices, even if it has a cost disadvantage. Further, entry of the AV firm into a market with a dominant ride-hailing firm may reduce total vehicle supply and increase customer wait costs. We also find that when customers are impatient, the entry of a high cost AV firm may lead to a decrease in social welfare despite introducing competition, suggesting that regulators should be careful about introduction of robotaxi services in a market if they are not sufficiently cost efficient. From a broader perspective, our results demonstrate that platform business models in general may have significant strategic advantages over firms with traditional vertically-integrated models under competition, and platforms' dominance in a market may even result in welfare gains.
Daehoon Noh (Korea University), Tunay I. Tunca (UMD, Smith), Yi Xu (UMD, Smith)
Management Science