Regulating Ride-sourcing Services with Product Differentiation and Congestion Externality

This paper proposes a model of the ridesourcing market in presence of traffic congestion and with the provision of both solo and pooling services. Our analysis of the first-best solution shows that, under a highly congested scenario, the ridesourcing platform may enjoy non-negative profits. However, when congestion is low, the ridesourcing market must be subsidized due to low marginal costs of operation. This mirrors previous findings in the traditional taxi literature. We also demonstrate that a commission cap on the solo service combined with a congestion toll (however small) on ridesourcing vehicles can induce any desired, sustainable equilibrium under the assumption of homogeneous value of travel time and sufficient supply of homogeneous drivers. Furthermore, numerical experiments suggest that even when accounting for heterogeneity in the value of travel time, the commission cap is still welfare improving--whether combined with a toll or not. This confirms the effectiveness of the commission cap strategy illustrated in previous literature and provides decision makers with a simple, non-intrusive mechanism for regulating the market