Capturing the Benefits of Autonomous Vehicles in Ride Hailing: The Role of Market Configuration

We develop an economic model of autonomous vehicle (AV) ride-hailing markets, in which uncertain aggregate demand is served with a combination of a fixed fleet of AVs and a flexible pool of human drivers (HVs). Dispatch efficiencies increase with scale because of density effects. We analyze market outcomes in this setting under four market configurations, defined by two dispatch platform structures (common platform versus independent platforms) and two levels of supply competition (monopoly AV versus competitive AV). A key result of our analysis is that the lower cost of AVs does not necessarily translate into lower prices; the price impact of AVs is ambiguous and depends critically on both the dispatch platform structure and the level of AV supply competition. In the extreme case, we show that if AVs and HVs operate on independent dispatch platforms, there is a monopoly AV supplier, and labor supply elasticity is sufficiently high, then prices are even higher than in a pure-HV market. Indeed, to guarantee consistently lower prices (relative to a pure HV market) in all scenarios and under all supply and density elasticities, a common dispatch platform between AVs and HVs is required. Furthermore, competitive AVs lead to lower prices than monopoly AVs in every such scenario. Our results illustrate the critical role that market configuration plays in realizing potential welfare gains from AVs. This paper was accepted by Omar Besbes, revenue management and market analytics. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2020.03112 .