What are Ridesourcing / Transportation Network Company (TNC) Services?

Ridesourcing or Transportation Network Company (TNC) services use smartphone apps to bring passengers in contact with drivers who typically drive part-time, and use their own car. The ‘surge pricing’ practised by TNCs aims at matching demand and supply at all times. Whilst such services probably increase the overall efficiency of the transportation system, they have been accused of unfair competition by traditional taxi companies. It is however possible to design regulatory measures that tackle most of the issues associated with ridesourcing without threatening its most innovative business practices (which are increasingly adopted by traditional players anyway).

• Ridesourcing probably increases the overall efficiency of the transportation system.

• Regulations can tackle most issues associated with ridesourcing without threatening its innovative nature.

• Ridesourcing probably increases the overall efficiency of the transportation system.

• Ridesourcing services use apps to connect passengers with drivers who typically drive part-time, and use their own car.

Services that “use smartphone apps to connect community drivers with passengers” are variously referred to as ridesourcing, TNCs, ride-hailing, or ride-booking services (Shaheen et al., 2015a). The booking process for these services can be described as follows (Rayle et al., 2016):

“Ridesourcing allows travellers to request a ride in real-time through a smartphone application, which communicates the passenger’s location to nearby drivers. After a driver accepts a ride request, the passenger can view the vehicle’s real-time location and estimated arrival time. The app provides GPS-enabled navigation, which helps non-professional drivers find destinations (…). The payment (…) are automatically charged to the passenger’s credit card. The driver keeps a portion of the fare, with the balance going to the ridesourcing company. (…) Drivers and passengers rate each other at the ride’s completion (…). Unlike taxis, ridesourcing services (…) typically use drivers who lack a commercial vehicle license, drive their personal vehicle, and work part-time.”

An important characteristic of these services, which differentiates them from the taxi market, is the use of dynamic pricing or “surge pricing”: during periods of peak demand, prices increase to balance supply and demand. The purpose of “surge pricing” is to provide incentives to drivers to accept requests when demand increases, for instance due to poor weather (Shaheen et al., 2015a). Some controversies raised by on-demand ride services have been widely publicised in the popular and professional media.

On the one hand, some claim that “(t)he closest the shared-use mobility market comes to capturing the excess capacity of already owned and underused assets is in the on-demand ride sourcing market” (ITS America, 2015). In this view, on-demand ride services have improved the overall efficiency of the transport system.

Cramer and Krueger (2016) argue that four factors likely contribute to their higher capacity utilisation:

  • Their more efficient driver-passenger matching technology (mobile internet technology and smartphones compared to two-way radio dispatch system or sight-based street hailing);
  • The larger scale of TNCs than taxi companies in the cities that were surveyed; as a result “pure chance would likely result in an (…) driver being closer to a potential customer than a taxi driver from any particular company” (in other words, there are “network efficiencies of scale”);
  • Inefficient taxi regulations which “prevent taxi drivers who drop off a customer in a jurisdiction outside of the one that granted their license from picking up another customer in that location”;
  • The flexible labour supply model of the TNCs and surge pricing which closely matches supply with demand throughout the day.

On the other hand, TNCs have been accused of unfair competition and of exacerbating traffic problems.

Regarding the first issue, it has been claimed that these services compete almost directly with traditional taxi services, but without being subject to same regulatory framework (for instance, regarding safety, screening of the drivers, vehicle maintenance, etc.). Other points of criticism include the opacity of the pricing practices, the focus on young and affluent market segments, and negative impacts on safety (Rayle et al., 2016). Moreover, in cities where TNCs have important market shares, congestion supposedly has worsened, partly due to induced traffic, but also due to practices such as double parking in bike lanes and bus stops when passengers are taken on board or dropped off.

However, as pointed out by Shaheen et al. (2015a), due the novelty of these services, independent scientific assessments of their impacts remain rare. Anyway, most of the problems allegedly associated with TNCs can be dealt with through dedicated regulation which does not touch on the fundamental innovative aspects of the business model. For instance, congestion can be tackled with road pricing that would cover all motorized modes equally. Regulators can also require that insurance policies provide different types of coverage depending on whether the driver uses his car for private purposes or for driving passengers.

Some cities are also working on regulations that would ensure that TNCs also provide services to people with physical impairments (Rainwater et al., 2015).

Finally, whilst TNCs have proved formidable competitors for traditional taxi services, their business model is far from unassailable. Key features, including the matching app, can be replicated by competitors, and this is exactly what is currently happening. The ‘traditional’ taxi market is also increasingly using mobile apps and waiting times for taxis have been brought in line with those of ridesourcing/TNC services. An important difference from ridesourcing/TNCs is that the rates of such services remain subject to regulations (if applicable) and that (up to now) they do not practice “surge pricing”. Moreover, some new entrants in the market offer employee status to drivers who work exclusively for them, which is likely to attract drivers unhappy with their ‘contractor’ status with existing TNCs .

  • Cramer, J. & Krueger, A.B. (2016), Disruptive Change in the Taxi Business: The Case of Uber, NBER Working Paper No. 22083, Issued in March 2016
  • 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
  • Rainwater, R., Hirshon, L., Jones, M., Levin, D., McCarthy, K., Morano, B. & Simon S. (2015),  Cities, the Sharing Economy and What’s Next, National League of Cities report, http://www.nlc.org/Documents/Find%20City%20Solutions/City-Solutions-and-Applied-Research/Report%20-%20%20Cities%20the%20Sharing%20Economy%20and%20Whats%20Next%20final.pdf
  • 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.
  • Shaheen, S., Chan, N., Bansal, A. & Cohen, A. (2015a), Shared Mobility: Definitions, Industry Developments, and Early Understanding Bikesharing, Carsharing, On-Demand Ride Services, Ridesharing, Shared-Use Mobility http://innovativemobility.org/?project=shared-mobility-definitions-industry-developments-and-early-understanding   

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