Do shared modes lead to more or to less competition in urban mobility?

Due to increasing economies of scale, public transport services in urban areas tend to a ‘natural monopoly’. In taxi markets, there are also important barriers to competition. Most shared modes use platforms that manage all aspects of sharing. If the costs of managing the platform are high enough compared to the variable costs of the systems, new monopolies may well emerge. If this would turn out to be the case, it can be argued that shared modes are a form of public utility, and should thus also be subject to Public Service Requirements.

• Public transport services in urban areas tend to a ‘natural monopoly’.

• In taxi markets, there are also important barriers to competition.

• If the costs of managing sharing platforms are high enough, new monopolies may emerge.

• If shared modes are utilities, then they should be subject to Public Service Requirements.

Traditional public transport is characterised by relatively high fixed costs, such as expenditure on infrastructure and rolling stock. If fixed costs are high enough compared to variable costs, then the total costs of production are minimized when the market is served by a single supplier. Most economists reckon that this is the case with public transport services in urban areas (in particular rail, metro and tram services), which will tend to a so-called ‘natural monopoly’. This is a major motive for government intervention in public transport, including outright public ownership (see Hensher and Wong, 2011). Over the last decades, some countries have privatised public transport operators, but mostly subject to periodic allocation of service contracts for a given area or line. Public transport operators are also often subject to so-called public service requirements. Unregulated privatisation has remained the exception.

Taxis offer an intermediate solution between the ‘purely private’ and the ‘purely public’ transport modes. The following market definition corresponds to the way the services are offered (see for instance Aquilina, 2011; Salanova et al., 2011; Rayle et al., 2016):

  • Street and rank hiring refers to taxi services provided through random picking for hire on the streets (‘hailing’) or through a ‘first in, first out’ allocation system at taxi ranks. Due to the nature of the allocation system, consumers are usually not in a position to compare different possible offers before choosing a taxi. Therefore, competition in this market is limited or non-existent.

Pre-booking segment refers to “any other forms of provision of services such as telephone or Internet booking”. In this segment, consumers can shop around before booking, which increases co

In cities where these two markets are clearly delimitated, the first market segment is often subject to some type of regulation (maximum prices, limited entry) to compensate for the lack of effective competition and the externalities caused by the search for clients.

The regulation of taxis is the subject of a vast literature. Several authors have argued that restricting access to the market (for instance, through a ‘medallion’ system) only further reduces competition, and creates monopoly rents for the medallion owners.

Some now question whether these shared modes are not prone to economies of scale themselves. Indeed, one of the common building blocks of most shared modes are platforms that manage all aspects of sharing; from keeping track of supply and demand to routing algorithms and predictive analytics. If the costs of managing the platform are high enough compared to the variable costs of thWith the rise of shared mobility solutions, a new source of competition has emerged. The systems, new monopolies may well emerge.

For instance, some (e.g. Burlando, 2012) have argued that, because of the cost structure of carsharing, operators need to operate at a large scale, and this implies a higher level of concentration of the market to ensure its viability. 

In Europe, most car-sharing operators used to enjoy a “local monopoly”. However, competition has increased over time, and a “growing number of cities have more than one car-sharing operator active within its boundaries and there is competition amongst them” (Ciari et al., 2015). The use of travel apps could make competition more intense, both intra-modal and between modes.

The risk for monopoly power abuse has also been discussed in the case of Ridesourcing/ Transportation Network Companies.  Indeed, in  the case of TNCs, “as the firm expands the number of drivers it has in a market, the time it takes for a car to get to a customer shortens, which attracts more passengers, which in turn begets more drivers. As its business grows, drivers also have less downtime, meaning the firm can lower prices, which again attracts more users“. In other words, TNCs are subject to so-called “network efficiencies of scale”, which can also be a source of monopoly power. However, because these network effects are mostly local, it has been argued that any risk of monopoly in the TNC market would also be localised.

In short, shared mobility creates new forms of competition in the mobility market, but there is also a possibility that some subsegments will become natural monopolies. If this would turn out to be the case, it can be argued that shared modes are a form of public utility, and could thus also be subject to Public Service Requirements.

  • Aquilina, M.. Quantity De-restriction in the Taxi Market: Results from English Case Studies. Journal of Transport Economics and Policy. Vol. 45, No. 2 (May 2011), pp. 179-195
  • Burlando, C. 2012, A comparison of car sharing organizational models : an analysis of feasible efficiency increase through a centralized model, Review of economics & finance. 2, p. 53-64
  • Ciari , F., Balac, M. & Balmer, M.. Modelling the effect of different pricing schemes on free-floating carsharing travel demand: a test case for Zurich, Switzerland.  Transportation; May 2015, Volume 42, Issue 3, pp 413-433, first online: 01 April 2015
  • Hensher DA and Wong G 2011 ‘Different approaches to public transport provision’, Journeys, vol.November:7, pp. 31-41
  • Le Vine, S., Zolfaghari A. & Polak, J. (2014), Carsharing: Evolution, Challenges and Opportunities, 22th ACEA Scientific Advisory Group Report https://www.acea.be/uploads/publications/SAG_Report_-_Car_Sharing.pdf
  • ITS America 2015. Rise of the Real-time Traveler: An exploration of trends and innovation in urban mobility, http://www.trb.org/Main/Blurbs/173251.aspx
  • Rayle, L., Dai, D., Chan, N., Cervero, R. & Shaheen, S. Just a better taxi? A survey-based comparison of taxis, transit, and ridesourcing services in San Francisco, Transport Policy, Volume 45, January 2016, Pages 168-178, ISSN 0967-070X, http://dx.doi.org/10.1016/j.tranpol.2015.10.004.
  • Salanova, J.M., Estrada, M., Aifadopoulou, G., & Mitsakis, E. A review of the modeling of taxi services, Procedia – Social and Behavioral Sciences, Volume 20, 2011, Pages 150-161, ISSN 1877-0428, http://dx.doi.org/10.1016/j.sbspro.2011.08.020.

Leave a Reply

Your email address will not be published.