Frictions in a Competitive, Regulated Market: Evidence from Taxis
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.
We are extremely grateful to Claudio T. Silva, Nivan Ferreira, Masayo Ota, and Juliana Freire for giving us access to the TPEP data and their help and patience to familiarize us with it. Jean-Francois Houde, Myrto Kalouptsidi, Nicola Persico, and Bernardo S. da Silveira, an editor and four referees offered very helpful feedback. Milena Almagro Garcia provided excellent research assistantship. We gratefully acknowledge financial support from the National Science Foundation via grant SES-1558857. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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