Microeconomic analysis of ridesourcing market regulation policies

We develop a microeconomic model of competition between ridesourcing, public transport, and cruising taxis to analyse how alternative ridesourcing regulation policies affect not only the ridesourcing service but also other modes of transport. To maximise social welfare in a framework with congestion externalities, we analyse three alternative regulation policies (i) a charge as a percentage of the ridesourcing trip fare (ii) a fixed charge per ridesourcing trip, and (iii) a fixed charge per ridesourcing vehicle. A randomised search algorithm is programmed and simulations are performed considering the base case of the Metropolitan Region of Santiago de Chile. We find that for the case of speeds below 9 km/h, the market power of the platform is dominated by the congestion externality effect, which leads to an optimum where the regulator charges a tax to the platform. In turn, waiting time for ridesourcing increases, but congestion decreases. Lower congestion scenarios lead to a ridesourcing subsidy, in which the regulation policy increases the number of ridesourcing drivers and reduces waiting time, at the cost of increasing congestion. For a given scenario (either low -congestion or high -congestion), we find that the profits of the agents involved (ridesourcing platform and drivers, taxi drivers, and bus operator) are sensitive to the type of regulation applied, however the total social benefit and consumer surplus are largely insensitive to the regulation adopted, therefore policymakers could take into account, for instance, the effects on the financial situation of the public transport sector when deciding which type of regulation instrument to apply to the ridesourcing sector.