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Is ride-hailing doomed to monopoly? Theory and evidence from the main U.S. markets

Le VTC est-il condamné au monopole ? Théorie et preuves des principaux marchés des États-Unis
Bruno Carballa Smichowski
p. 43-72

Abstracts

This paper shows that the irruption of digital platforms is creating winner-takes-all dynamics in ride-hailing markets. We argue that ride-hailing markets are becoming winner-takes-all for two reasons: product differentiation is not very relevant to carve out market niches and indirect network effects are particularly strong in ride-hailing apps, especially because they are enhanced by the user “data snowball effect” to a larger extent than in other digital platforms. We provide an empirical corroboration of these findings that builds on available data from the main cities of the United States. After defining the relevant market of ride-hailing platforms, we compare the existent data to show that, as expected in winner-takes-all markets, the market shares of a single firm (Uber) have been increasing to the detriment of its competitors’. Finally, we show that Uber’s strategy to conquer these markets seems to be based on predatory pricing and we suggest three ways in which Uber might recoup its losses from predation.

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Excerpt

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Outline

Introduction
1. An assessment of the relevance of factors leading to winner-takes-all dynamics in multi-sided platforms in the context of ride-hailing
1.1. Network effects and the ‘data snowball effect’
1.2. Switching costs and multi-homing
1.3. Product differentiation
2. Some evidence on winner-takes-all dynamics in American ride-hailing markets
2.1. Market definition and market shares
2.2. Signs of Uber’s predatory pricing strategy aimed at securing a winner-takes-all ride-hailing market
Conclusion

First lines

Introduction

Since Rochet and Tirole’s (2003) seminal paper “Platform competition in two-sided markets”, a rich literature about winner-takes-all dynamics in multisided platforms has developed. The latter are defined as platforms that operate in “markets in which one or several platforms enable interactions between end-users, and try to get the two (or multiple) sides ‘on board’ by appropriately charging each side” (Rochet & Tirole, 2006). Some authors argue that in these markets the presence of high switching costs, the impossibility or irrelevance of product differentiation and notably the existence network effects in digital platforms, lead to winner-takes-all dynamics, which poses a threat to competition (Geradin & Kuschewsky, 2013; Graef, 2015). Other authors, in turn, have criticized this view by providing arguments that minimize the importance of these factors (Sokol & Comerford, 2016; Evans & Schmalensee, 2017).

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References

Bibliographical reference

Bruno Carballa Smichowski, « Is ride-hailing doomed to monopoly? Theory and evidence from the main U.S. markets », Revue d'économie industrielle, 162 | 2018, 43-72.

Electronic reference

Bruno Carballa Smichowski, « Is ride-hailing doomed to monopoly? Theory and evidence from the main U.S. markets », Revue d'économie industrielle [Online], 162 | 2e trimestre 2018, Online since 15 June 2020, connection on 22 November 2019. URL : http://journals.openedition.org/rei/6987 ; DOI : 10.4000/rei.6987

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About the author

Bruno Carballa Smichowski

CEPN, Université Paris XIII Sorbonne Paris Cité
bcarballa@gmail.com

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Copyright

© Revue d’économie industrielle

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