Competition between P2P Ridesharing Platforms and Traditional Taxis

In recent years, the rapid growth of peer-to-peer (p2p) ridesharing has significantly cut the market share and profitability for taxis, but taxis remain a major service provider in the personal-transportation service industry. This paper analytically examines a market with two segments of consumers based on their travel distances, where a p2p platform and a traditional taxi company have different inconvenience costs and compete for customers through pricing. Our analysis shows that consumers’ inconvenience costs and the relative size of the two consumer segments play a critical role in determining the firms’ equilibrium targeting and pricing decisions. We find that an increase in the taxi’s inconvenience cost can have non-monotonic effects on firms’ prices. An increase in the taxi’s inconvenience cost, which reduces the consumer’s utility from a taxi ride, can lead to an increase in the taxi price or a decrease in both firms’ equilibrium prices. In this scenario, an increase in the taxi’s inconvenience cost can make both firms worse off. In an extension, we show that distance-based price discrimination (charging different unit prices based on the consumer’s travel distance) can lead to win-win or loss-loss outcomes for both firms depending on the relative size of the consumer segments and the taxi’s inconvenience cost. Our results have useful managerial and regulatory implications