Evolution of Ride Services: From Ride Hailing to Autonomous Vehicles

In recent years ride service industry has been evolving rapidly driven by disruptive technologies such as, mobile apps, AI, and autonomous vehicles (AVs). While decentralized Ride Hailing companies have gained significant market share in the past decade, vertically-integrated robotaxi services using emerging AVs are starting to enter the market. In this paper, we aim to gain insights about the evolution and the future of ride services under these two distinct business approaches. We model and analyze the competition between an AV-based ride service firm (AV) and a platform-based Ride Hailing firm (RH). Although the AV model has a capacity commitment advantage, we find that when customers are sufficiently patient, in competition, the RH firm predominantly gains the upper hand in the market with lower delays and higher prices, as well as higher market share and profits even if it has a cost disadvantage. Surprisingly, entry of the AV firm into a market with an RH monopolist incumbent may reduce total vehicle supply and increase customer waiting times. When customers are impatient, the entry of an inefficient AV firm may even lead to a decrease in social welfare despite introducing competition. Our results provide insights into how decentralized Ride Hailing companies may have a strategic advantage to dominate the market in many cases due to the structure of their platform business model, and how this can sometimes hurt service quality. Conversely, regulators should also be cautious about subsidizing inefficient robotaxi services with costly technologies.