Density of demand and the consumer benefit from Uber

• Main Author: SHAPIRO, Matthew H.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: Taxis; transportation; United States; New York; Uber; Industrial Organization; Transportation
• Online Access: https://ink.library.smu.edu.sg/soe_research/2272; https://ink.library.smu.edu.sg/context/soe_research/article/3271/viewcontent/Uber_202012_wp.pdf
• Institution: Singapore Management University

Uber has attracted the attention of economists and policy makers for its innovations in the taxicab market and its potential for significant consumer welfare gains. The size of this gain depends in part on whether these innovations permit transactions previously costly or infeasible. Using New York City — the largest taxi market in the country — as its context, this paper estimates the level of any technological advantage Uber has over hail taxis in matching to consumers. I combine publicly available transportation data with data scraped from Uber and traffic cameras to estimate a model of the demand for transportation services and imbed it in a spatial equilibrium framework in which Uber and taxis compete for customers. I find that Uber’s matching advantage depends on the density of the market and translates into highly heterogeneous benefits to customers across the city. In consumer welfare terms, I estimate that the introduction of Uber added only $0.10 per ride in the densest parts of New York but up to $1.00 in the least dense. These results, combined with the high volume of substitution from taxis to Uber in central Manhattan, imply Uber’s appeal in its densest market has depended significantly on advantages independent from its matching technology, including its lower regulatory burden.