Frictions in a Competitive, Regulated Market: Evidence from Taxis

Guillaume R. Fréchette, Alessandro Lizzeri and Tobias Salz

American Economic Review, 2019, vol. 109, issue 8, 2954-92

Abstract: This paper presents a dynamic 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. The matching 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.

JEL-codes: C78 L51 L84 L92 L98 R48 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/aer.20161720
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Citations: View citations in EconPapers (52)

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Related works:
Working Paper: Frictions in a Competitive, Regulated Market: Evidence from Taxis (2018)
Working Paper: Frictions in a Competitive, Regulated Market Evidence from Taxis (2016)
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