Transportation network companies (TNC’s), which include taxis and ridesharing companies, are characterized by economies of density. Double a company’s vehicle and customer density and expected waiting time falls. In the past, these economies of density were offset by diseconomies of scale in dispatching, so that industry concentration was modest. Computerization has sharply reduced diseconomies of scale in dispatching and, in the absence of regulation, will lead to increased industry concentration and monopoly power. Research under this seed grant will explore how TNC’s should be regulated so as to efficiently balance the reduction in cost from increased industry concentration against the increased exercise of monopoly power. It will apply the theory of incentive regulation, in which “the principal” chooses a set of regulations that provide efficient incentives for “the agent”, taking into account that the agent is better informed than the principal. At one level of the incentive scheme, the regulator is the principal and the companies the agents; at another level, the company is the principal and the drivers the agents. The research will provide the cornerstone for a larger, collaborative research grant application to the National Science Foundation on “Integrating Transportation Network Companies into Urban Transportation Systems”.
