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The Rise of Ride Sharing in Urban Transport: Threat or Opportunity?

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Recently, the ride-sharing services have become very popular in urban transport. In particular, the rise of dynamic ride sharing startups have challenged to the traditional taxicab services. Although those dynamic developments within urban transport systems have made ride share services substitute for cab services, it has been controversial in the political sphere. Some researchers and policy makers argue that ride-share will lead to the death of public transportation, if government does not intervene in this area. However, market developments suggest the opposite. While competition between those urban transport modes has led to the dramatic decline in taxi fares, consumer welfare and economic efficiency have improved. Examining the rise of ride sharing and its effect on the traditional taxicab market, this chapter concludes that ride share services introduces a unique opportunity for the users of urban transport, but not threat. However, a mixed regulatory structure including deregulation and regulation policies is needed to improve market welfare in both markets. While economic regulations such as fare controls and entry restrictions are not necessary for both ride shares and taxicabs, social regulations are still crucial to improve the satisfaction of users of rideshare and taxicab services in terms of the quality of service.
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Chapter 10
The Rise of Ride Sharing in Urban Transport: Threat or
Opportunity?
Tamer Çetin
Additional information is available at the end of the chapter
http://dx.doi.org/10.5772/66918
Provisional chapter
© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons
Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,
and reproduction in any medium, provided the original work is properly cited.
The Rise of Ride Sharing in Urban Transport:
Threat or Opportunity?
Tamer Çetin
Additional information is available at the end of the chapter
Abstract
Recently, the ride-sharing services have become very popular in urban transport. In
particular, the rise of dynamic ride sharing startups have challenged to the traditional
taxicab services. Although those dynamic developments within urban transport sys-
tems have made ride share services substitute for cab services, it has been controversial
in the political sphere. Some researchers and policy makers argue that ride-share will
lead to the death of public transportation, if government does not intervene in this area.
However, market developments suggest the opposite. While competition between those
urban transport modes has led to the dramatic decline in taxi fares, consumer welfare and
economic eciency have improved. Examining the rise of ride sharing and its eect on
the traditional taxicab market, this chapter concludes that ride share services introduces
a unique opportunity for the users of urban transport, but not threat. However, a mixed
regulatory structure including deregulation and regulation policies is needed to improve
market welfare in both markets. While economic regulations such as fare controls and
entry restrictions are not necessary for both ride shares and taxicabs, social regulations
are still crucial to improve the satisfaction of users of rideshare and taxicab services in
terms of the quality of service.
Keywords: urban transport, Uber, ride sharing, taxicabs, regulation, deregulation,
market welfare, eciency
1. Introduction
This chapter examines the rise of ride sharing in urban transportation and its eect on the tra-
ditional taxicab services. The aim is to evaluate whether ride sharing is threat or opportunity
for the future of urban transportation. The rise of ride sharing has inuenced the nature of
urban transport in many dierent areas from the quality of service to the structure of prices
and demand within public transportation. The Uber experience suggests that ride sharing in
© 2017 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons
Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,
distribution, and reproduction in any medium, provided the original work is properly cited.
taxi markets has become substitution for the traditional cab services. Clearly, the ride-sharing
system competes with the traditional taxicab service. The success of ride sharing stems from
-
petitive market conditions. Most importantly, this system eliminates the transaction costs of a
taxicab market under regulated market conditions [1, 2]. Conversely, the failure of traditional
taxicab services stems from distortions inherent in a regulatory process. Price controls and
      
Clearly, while ride sharing increases consumer welfare, the strictly regulated taxicab markets
3].

urban transportation on the traditional taxi services, we also have to take into consideration
the reasons and results of taxicab regulation. For this aim, the chapter provides an overview
of the literature on the regulation of taxis. This section of the chapter includes the economic
rationale for regulation in the traditional taxicab markets, the lessons from some regulatory

discusses the impact of ride sharing on the cab service and its regulation in the traditional taxi
markets. It concludes with a critical statement on regulation, deregulation, and competition in
taxi markets, including some policy suggestions. In this context, the chapter consists of three
main sections including introduction. In Section 2, I evaluate the rise of ride sharing and its

and introduce some policy suggestions about regulation, competition, and deregulation by
taking into account the rise of ride sharing.
2. The rise of ride sharing or invisible hand
A substantial recent development in urban transportation has been the occurrence of ride-
sharing system as the rise of invisible hand throughout the world. This intra-city transport
mode occurred in San Francisco as Uber and Lyft and has become very popular in the United
States in a short time. While Uber entered into the market in San Francisco in 2010, Lyft

share throughout the world. As of September 2015, Uber performs in 60 countries and 300
cities. Today, Uber is in use in 507 cities throughout the world.1 It has an estimated market
value of over $68 billion.2 In the case of many cities, ride sharing started to be substitute for
the traditional taxicab services in the intra-city public transportation. One recent report found
that ride sharing met an average 46% of all total paid car rides through Uber in the major US
3 because ride sharing is cheaper than a cab trip.4 Note that
this happened within 5 years.



   

A recent study shows that ride sharing is cheaper than taxicab in 21 largest cities in the United States. See for more

Urban Transport Systems192
    
operating for a long time in the US cities. However, the dynamic ride-sharing services are
  

though the traditional ride-sharing programs were initiated during the World War II to save
-

congestion. But, aiming at commuters, this system did not involve payment to the driver,
even though contribution was made for gas or tolls in some cases. Mainly, the logic of ride-
sharing service is to enable commuters to ride together on a regular basis. Park-and-ride lots
  -
tem [4, 5
become one of the fastest growing startups in the sharing economy throughout the world.
This system has appealed to people for some reasons. First, the dynamic ride sharing commits
a regular ride-sharing arrangement for people who are willing to share a ride occasionally.
   
phone messaging and who are generally mobile in the modern cities. Third, registration and
screening by a ride-share service makes this service safe and secure for commuters. Fourth,
       
4, 6].
            
seeking them online through an online app downloaded on smart phones. This app is user-
   
The cars are private. In other words, ride-sharing companies such as Uber and Lyft do not
need to have their own cars. The companies sign up private drivers who are willing to pro-
vide rides to paying passengers and pass the ride requests directly to them. The system itself
determines the price of the ride and all transactions happen through the online system. In
general, 70-80% of each fare goes to the driver and the company keeps the rest.5 A distinctive
feature of ride-sharing service is that it does not include fare controls and barriers to entry as

ride-share services because of unfair competition considerations, competitive pressure from
ride sharing to the traditional taxi services changes the nature of urban transportation. As a

public transport modes in urban transportation. This change in the preferences of consumer
using urban transportation has made the ride-share services substitute for the traditional taxi-
cab services. In order to understand this substitution relationship among urban transport
modes, we have to look at the change in those transport modes. As depicted in Figure 1, while
Uber ride increases directly correlate with taxi ride decreases, car rentals are relatively con-
sistent. It is clear that demand for the traditional taxicab service decreases, and concurrently,
demand for Uber increases. Because this change in the urban transportation modes continues
in favor of ride sharing, we can infer that Uber has increasingly become substitute for the
traditional taxicab services.

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Urban Transport Systems194
      
is the dramatic decline in prices. As reported in Table 1 and Table 2, The rates for ride shar-
ing are generally lower than regular taxis in most major cities in the United States, even
excluding the taxi driver’s tip. As summarized in Ref. [8],6  
shows the taxi fare relative to the Uber fare. If the ratio is over 1, as it is everywhere except
New York and Philadelphia, that means that Uber is cheaper than a cab-that is, until surge
pricing reaches that level. In L.A., an Uber car is cheaper for this sample trip even with surge
pricing up to 1.7x. It is also important to note that you do not have to tip your Uber driver.
And most people do tip their taxi driver. If you add a tip of 20% to the cab fares, Uber looks
    
suggests that price competition leads to the expansion of ride sharing in urban transportation.
Uber Taxi Taxi/Uber
New York 17.75 15.50 0.9
Philadelphia 15.25 14.20 0.9
Portland 15.05 15.00 1.0
Cleveland 13.00  1.1
Dallas 10.30 11.25 1.1
Miami 13.25 14.50 1.1
Indianapolis 11.65 13.00 1.1
Phoenix 11.00 12.50 1.1
Minneapolis 12.15 14.25 1.2
Baltimore 10.75 13.05 1.2
Columbus 10.20 12.85 1.3
Denver 10.35 13.75 1.3
Detroit 12.30 16.50 1.3
 11.70 16.00 1.4
San Francisco 12.30 17.25 1.4
Chicago  14.00 1.5
Boston 11.10 16.60 1.5
Atlanta 10.00 15.00 1.5
Houston  13.75 1.5
San Diego 11.35 17.80 1.6
Los Angeles  16.35 1.7

Table 1. Comparison between Uber and taxi fares.

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More specically, the most remarkable eect of ride-sharing system has occurred in San
Francisco and New York, because Uber and Lyft initially launched in these cities. For that rea-
son, in order to beer understand the eect of ride sharing on the traditional taxicab services,
we examine the cases of San Francisco and New York here, even though it is still at the early
stage for a detailed evaluation. Today, in San Francisco, ride sharing meets an important part
of demand for urban travel [2]. In other words, the increase in use of ride sharing led to a 65%
decline the number of cab trips in San Francisco in 2 years after Uber's entry into the market,
as shown in Figure 3 [7]. Note that this eect occurred within 2 years.
Similarly, a remarkable impact occurred in New York, even though Uber and Lyft only
entered into the market in 2011 and 2014, respectively.7 Table 3 reports the change in the
market shares of intra-city transportation modes in New York City in 2014 and 2015. Whereas
the market share of ride-sharing taxi service was 2% in 2014, it reached 8% in 2015 with a
20,600 ride-sharing taxis.8 In the same period, the market shares of yellow cabs and other
transport services declined 9.52 and 5.76%, respectively, even though the number of medal-
lions remained constant at 13,771. This clearly suggests that taxi users started to substitute
Uber Taxi +20% Tip Taxi/Uber
New York 17.75 18.60 1.0
Philadelphia 15.25 17.04 1.1
Portland 15.05 18.00 1.2
Cleveland 13.00 16.74 1.3
Dallas 10.30 13.50 1.3
Miami 13.25 17.40 1.3
Indianapolis 11.65 15.60 1.3
Phoenix 11.00 15.00 1.4
Minneapolis 12.15 17.10 1.4
Baltimore 10.75 15.66 1.5
Columbus 10.20 15.42 1.5
Denver 10.35 16.50 1.6
Detroit 12.30 19.80 1.6
Seale 11.70 19.20 1.6
San Francisco 12.30 20.70 1.7
Chicago 9.50 16.80 1.8
Boston 11.10 19.92 1.8
Atlanta 10.00 18.00 1.8
Houston 9.00 16.50 1.8
San Diego 11.35 21.36 1.9
Los Angeles 9.40 19.62 2.1
Source: hp://www.businessinsider.com/uber-vs-taxi-pricing-by-city-2014-10?IR=T accessed on June 12, 2016
Table 2. Comparison between Uber and taxi fares with +20% tip.
Urban Transport Systems196

8% decrease in the number of traditional taxicab trips from 2012 to 2014.
10 the presence of ride sharing in New York has led to a radi-
cal decrease in the price of medallions as in Chicago [7]. The medallion prices have dropped
dramatically, after they peaked at more than $1 million in 2013 but fell to less than $800,000 in
11 Competition from the ride-sharing services such as Uber and Lyft
led to a 31% loss in the value of medallions within 2 years. Also, ride sharing has given rise to

Figure 3.          
report by SF Municipal Transportation Agency, 2014.


     

2014 2015 Change
Market share of Uber 2 8 +400%
Market share of green cabs 4 5 +25%
Market share of yellow cabs 42 38 
Price of medallions $1,000,000  
Number of yellow taxicabs 13,771 13,771 Constant
  


Table 3. Change in the market shares of intra-city transportation modes in New York City.
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197
depicted in Figure 4 [7]. The ndings from these cities are particularly important because ride
sharing in urban transport has emerged and developed in those cities. For that reason, the
ndings from these experiences shed light to the future of relationship between the dynamic
ride-sharing and the traditional taxi services. The current developments clearly conrm the
rise of ride-sharing system in the big cities of the United States [4].
In other words, the rise of ride sharing improves consumer welfare and thus leads to eciency
in urban transportation as a whole. Figure 5 depicts the eects of ride sharing on welfare and
eciency from a point of view of microeconomics in a theoretical basis. In the gure, point M
refers to the market equilibrium under monopoly market structure, whereas E* represents the
equilibrium in a perfect competition market. Note that price is equal to marginal cost (MC)
at point E*. In a theoretical sense, under a market equilibrium that refers to monopolistic
market structure as at point M, there is dead-weight loss (DWL) represented by the area of
MAE*, since the price under the monopolistic market equilibrium is higher than MC. This is
the loss in the welfare of consumers who demand the product or service produced by incum-
bent rm(s) in this market. On the contrary, the point E* refers to an equilibrium in a perfect
competition market and there is no loss in consumer welfare at this point. Accordingly, if the
market equilibrium shifts from the monopolistic market equilibrium M to the competitive
market one E*, consumer welfare increases and eciency improves, since the users of this
good or service pay less for the related good/service and buy more. In such market, resources
are eciently redistributed because there is no DWL. The market is the Pareto-ecient.
Of course, it is not easy to nd those kinds of markets in the real world. However, this graphi-
cal analysis introduces a reasonable theoretical framework for us to beer understand the
eect of expansion of ride sharing on the taxi services in urban transportation. Accordingly,
Figure 4. Taximeter revenues from cab trips in New York. Source: TLC. hp://www.nyc.gov/html/tlc/html/home/home.
shtml.
10 Ride sharing has not aected the price of medallions or licenses in San Francisco, because there is no market for medal-
lions as in New York due to the regulatory mechanism in San Francisco.
11 See for more detail hp://skift.com/2015/08/12/new-york-city-taxi-owners-form-group-to-take-on-uber/and hp://
www.economist.com/news/united-states/21661016-does-uber- substitute-cabs-or-aract-new-riders-it-depends-
where-you-live-tale?frsc=dg%7Cc.
Urban Transport Systems198
we assume that the point M represents the monopolistic market structure in the traditional
taxicab markets, because the taxicab markets are traditionally subject to strict government
regulations such as barriers to entry and this regulatory environment leads to articial rents
or monopolistic prots for medallion owners and a dramatic increase in taxi fares [9, 10].
Because the level of both medallion prices and taxi fares at the point M is higher than the ones
in the perfect competition market, it is possible to accept that there is the DWL in the regu-
lated taxicab markets. Accordingly, the area of MAE triangle represents the magnitude of loss
in consumer welfare in the absence of competitive pressure from ride-sharing service to the
traditional taxicab market under regulation. Conversely, the market equilibrium has moved
to the point E at the competitive level from the monopolistic market equilibrium through the
emergence of ride sharing. As discussed above, both taxi fares and medallion prices have
declined after the traditional taxicabs started competing with the dynamic ride-share services.
This theoretical analysis, which is consistent with the real market developments, suggests that
the rise of ride-sharing services leads to a dramatic decrease in dead-weight loss represented
by the area of MAE triangle. We can dene this eect as an improvement in economic e-
ciency in the market for both taxi fares and medallion prices in urban transportation, because
medallion prices and taxi fares are close to marginal cost at the equilibrium point E occur-
ring along with the introduction of ride-sharing services into the market. Overall, the results
suggest that the rise of ride sharing in urban transportation improves market welfare and
economic eciency.
3. Regulation of taxis in urban transport
The conventional academic wisdom is that taxicab market is unique for government regu-
lation [11–14]. Because the main rationale for taxicab regulation is market failure consid-
Figure 5. The eect of ride sharing on market welfare and eciency in taxi services. Source: This gure and analysis is
adapted from Ref. [3].
The Rise of Ride Sharing in Urban Transport: Threat or Opportunity?
http://dx.doi.org/10.5772/66918
199
        
failures. For that reason, taxicab markets have strictly been regulated. Governments have
extensively controlled taxi fares and impeded entry to the market. However, this approach
is rather controversial today, because, in many cases, regulation of taxis has led to market
             
      
increases in the value of medallions, price regulation brings about higher fares in the regu-
lated taxicab markets12 [3, 15, 16].
The failure of regulation and the rise of ride sharing as an alternative intra-city transportation
mode have put the inquiry of regulation in taxicab markets into the forefront. While deregu-
lation and competition have been considered as alternative policy measures to regulation
[17–           
competition between ride sharing and cabs, even though it is clear that there is an unfair
competition that stems from the regulatory asymmetry between taxicabs and ride sharing, the
solution of this problem is not to ban or restrict ride sharing through courts or governments,
but to regulate ride-sharing services or to deregulate price controls and entry restrictions in
the traditional taxicab market. A plausible solution can be to develop a mixed regulatory
mechanism that allows competition between ride sharing and cabs in the market. Since it is
clear that the presence of ride sharing leads to innovative developments in the market and
-
4].
For instance, social regulations should continue to be applied for both the traditional taxi-
cab and dynamic ride-share service. In particular, security and safety for users and drivers
     
regulated in both taxi services. Such social regulations cannot be removed from the urban
transportation. However, the regulatory experience in the traditional taxicab markets and the
results from the rise of ride sharing in urban transportation suggest that economic regula-
tions such as barriers to entry and price controls are not needed anymore in the process of
competition between taxicabs and ride sharing. Governments should deregulate economic
regulations, because competition between the traditional taxicabs and dynamic ride-sharing


the other hand, social regulations regarding the quality of taxi service in urban transportation

4. Conclusion
The rise of ride-sharing economy in urban transportation has challenged to the traditional taxi-
cab services. The dynamic ride-sharing startups have introduced alternative taxi services to the
users of intra-city public transportation. This radical change among public transport modes
-
kets on medallion prices and taxi fares.
Urban Transport Systems200
within urban transport has led to a dramatic decline in taxi fares and thus an improvement in
consumer welfare and economic eciency in the market as a whole. Rapidly, the ride-sharing
services have started to become substitute for the traditional taxicabs. While taxicab services
have declined, the ride-share services have raised in urban transportation. On the other hand,
some researchers and policy makers started querying the regulation of taxicabs, and some oth-
ers have argued that the rise of ride sharing negatively aects public transportation.
Developments suggest that the rise of ride sharing will not lead to the death of public trans-
portation. Conversely, ride sharing gives rise to the unique opportunities for the producers
and users of taxi services in the intra-city public transportation. However, while competition
between ride sharing and traditional taxicabs improves consumer welfare, some new prob-
lems occur. But, it is clear that the solution of this problem is not to ban or restrict the dynamic
ride-sharing services in urban transportation. Instead, policy makers should prefer a mixed
regulatory mechanism. The ndings suggest that the best policy option is to deregulate eco-
nomic regulations such as entry restrictions and fare controls and to continue social regula-
tions including security and safety.
Author details
Tamer Çetin
Address all correspondence to: tcetin@yildiz.edu.tr
Department of Economics, Yildiz Technical University, Turkey
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Background and Purpose: Management Commitment to Service Quality (MSCQ) has been found to positively predict employee’s service quality and service behaviors in different service industries. In the context of sharing economy, the relationship between company and service providers is different from traditional employment relationship. For car-hailing service, drivers are mainly classified as contractors rather than employees. It is, therefore, necessary to understand whether MSCQ influences drivers’ service quality in a car-hailing context. Design/Methodology/Approach: Data were collected from 214 GrabCar drivers in Vietnam using online and offline survey. Partial Least Squares Structural Equation Modeling (PLS-SEM) was used for data analysis. Results: The findings suggest that three dimensions of MCSQ, namely reward system, technology support and organizational support exert significant direct impact on drivers’ service behaviors. In addition, job involvement plays an intermediary role in the relationship between MCSQ and service behaviors. Conclusion: This study expands previous research on MCSQ to the car-haling service and confirms the role of job involvement as an important mechanism to improve service quality provided by drivers. Due to the characteristics of the company-service providers’ relationship in the sharing economy, the mechanisms through which MCSQ influences providers’ service performance need to be investigated in further details.
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