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Frictions in a Competitive, Regulated Market: Evidence from Taxis

Guillaume R. Fréchette, Alessandro Lizzeri, Tobias Salz

NBER Working Paper No. 24921
Issued in August 2018
NBER Program(s):Industrial Organization

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.

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Document Object Identifier (DOI): 10.3386/w24921

Published: Guillaume R. Fréchette & Alessandro Lizzeri & Tobias Salz, 2019. "Frictions in a Competitive, Regulated Market: Evidence from Taxis," American Economic Review, vol 109(8), pages 2954-2992. citation courtesy of

 
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