Should traditional ride-hailing firms develop robotaxi service? Intra-firm and inter-firm competition analysis

• Passengers’ different preferences for human-driven service and Robotaxi service are portrayed. • Intra-firm competition and inter-firm competition triggered by the Robotaxi development are revealed. • Firm T prefers to develop Robotaxi service when the investment efficiency is low. • Firm T prefers to develop Robotaxi service when passengers prefer human-driven service more. In recent years, the accelerating breakthroughs in autonomous driving technology have catalyzed massive capital inflows into Robotaxi development, prompting ride-hailing service leading firms and emerging startups to commercialize Robotaxi service. However, considering the passengers’ attitude differences towards Robotaxi service and its co-opetition with traditional ride-hailing services, firms face complex strategic trade-offs when entering the Robotaxi market without giving up current ride-hailing services. In this paper, we develop a differentiated consumer utility model involving a traditional ride-hailing firm and a Robotaxi firm to examine the incentive for the traditional ride-hailing firm to also develop Robotaxi service, and we find that the effects of intra-firm competition and inter-firm competition lead to two counterintuitive results: (1) when passengers prefer human-driven service over Robotaxi service, the traditional ride-hailing firm surprisingly prefers to develop Robotaxi service; (2) when passengers exhibit preferences for Robotaxi service over human-driven service, the traditional ride-hailing firm is more likely to develop Robotaxi service only when the investment is less efficient, especially when the operational cost advantage of Robotaxi service is significant. Further, we find that the traditional ride-hailing firm’s Robotaxi development brings higher passenger surplus but may hurt the overall social welfare.