CFDP 2219R

Spatial Distribution of Supply and the Role of Market Thickness: Theory and Evidence from Ride Sharing

Author(s): 

Publication Date: January 2020

Revision Date: August 2020

Pages: 92

Abstract: 

This paper studies the e ects of economies of density in transportation markets, focusing on ridesharing. Our theoretical model predicts that (i) economies of density skew the supply of drivers away from less dense regions, (ii) the skew will be more pronounced for smaller platforms, and (iii) rideshare platforms do not nd this skew ecient and thus use prices and wages to mitigate (but not eliminate) it. We then develop a general empirical strategy with simple implementation and limited data requirements to test for spatial skew of supply from demand. Applying our method to ride-level, multi-platform data from New York City (NYC), we indeed nd evidence for a skew of supply toward busier areas, especially for smaller platforms. We discuss the implications of our analysis for business strategy (e.g., surge pricing) and public policy (e.g., consequences of breaking up or downsizing a rideshare platform).

Keywords: Spatial Markets, Transportation, Economies of Density, Market Thickness, Ridesharing

JEL Classification Codes: L13, R41, D62

JEL Classification Codes: L13R41D62

See CFDP Version(s): CFDP 2219