Uber versus car, taxi, or transit?

There is demand, there is supply, and then there is Uber, connecting the two like never before. While on one hand, Uber provides accessible and affordable mobility, its influence on individual’s decision making has potential consequences on car ownership, driver jobs and transit ridership. Lets dive into each one of them in this blog…

The last couple of decades has witnessed a radical change in the transportation sector, be it for moving the people or moving goods. With e-commerce transforming our shopping experience and ride-hailing services, also known as Transportation Network Company (TNC), influencing our commute, the on-demand economy has become an integral part of our lives today. In the US alone, the TNC ridership amounted for 4.2 billion trips in 2018, a growth of ~62% from 2017. This increasing shift towards an on-demand mobility service competes with car, traditional taxis and transit in terms of car ownership, driver jobs and transit ridership. Before we understand what these impacts are, lets take a look at who are the adapters of the on-demand economy and who is most influenced by it.

The above two figures present user demographics and user adaption rates for the two on-demand services – ride-hailing and e-commerce. As an example, the first figure tells us that 52% of the people who used ride-hailing service were males, while the second figure tells us that 9% of the males used the ride-hailing service. An important point to note here is that despite of the obvious convenience of on-demand services, the elderly population, for whom it is touted to be the most useful, least uses it, potentially due to lack of experience with smart phones and on-demand economy. However, the key takeaway from the above two figures is the striking similarity of the highs and the lows of user demographics and adaption for ride-hailing and online shopping. Thus the market for the two on-demand services is similar, i.e. those who tend to shop on Amazon also tend to use Uber. And although, ride-hailing and online shopping both together will influence individual’s decision making, in this blog we only look at the impacts from ride-hailing service on car ownership, taxi-driver jobs and transit ridership.

vs. Car
For most people buying a car is the highest investment they make after buying a house. But with the advent of on-demand taxi services like Uber, not owning a car might as well be a smart decision. With that being said, in a study performed at UC Davis, on an aggregate the authors did not find any significant reduction in vehicle ownership for ride-hailing users. However, there was considerable heterogeneity within this information, and the study found that the more frequent users of ride-hailing service did indeed have a lower vehicle ownership compared to less frequent users. The study found similar results for self-reported change in personal vehicle usage (in terms of vehicle miles driven), i.e. more frequent users of ride-hailing service drove less with their personal cars. Thus the opportunity cost from an idle sitting car gives more reasons to dispose off or rent out the asset.

vs. Taxi
The conventional taxi service sector is a highly regulated one in the US, limiting number of taxis and fare in the city. However, Uber, for as much as it may seem like, is not considered as a taxi-company, primarily because Uber is just a platform that connects customer demand for travel with driver supply. And hence it can easily flout the taxi regulations. Thus the entry of Uber in the field renders similar impacts as if the taxi-service sector was de-regulated. In particular, Berger et al. study the impacts of Uber entry on taxi driver jobs and compare the effects with 1978 Airline Deregulation Act and Motor Carrier Act 1980. As with the previous two deregulation acts, this study also found a decrease in driver wages by about 10% due to Uber entry, however, the total taxi driver supply remained unaffected. Specifically , the wage-employed drivers are worse affected compared to the self-employed drivers, who could switch once Uber entered the market.

vs. Transit
While above we looked at the interplay of Uber with Car and Taxi, with transit however, the interplay is unique. Uber provides obvious benefits with its reliability, convenience and accessibility. With that being said, transit can be cheaper, especially for daily commute purpose. And hence, Uber can be an alternate mode to transit – thus substituting for it, or can even complement transit for the first and last-mile of the travel. This interplay is sensitive to individual’s behavior in terms of value for time, money, convenience and safety. It is easy to think of Uber as a substitute to transit, however, if Uber cannot produce significant time savings compared to transit such that it outdoes its additional cost, Uber is very likely to be a complement to transit. Largely, the literature has found strong correlation between transit use and Uber use, however no causal inference has been deduced yet. In particular, a study conducted in the US found transit usage to be positively affected by Uber entry, increasing ridership by as much as 5% especially for transit systems in bigger cities, however with some significant difference in this effect for rail based and bus based transit systems. Yet there are certain studies who have reported substitution effect as users of ride-hailing service reported the next best alternative to be public transit.

Whether one likes Uber or not, it is likely to dominate the market for long. While it can have potential benefits by reducing vehicle ownership and complementing for transit, it has had disruptive impacts on taxi-service sector. And it is important to note, that even if car ownership does go down and if indeed Uber does complement transit, it can induce demand leading to worsening of traffic related externalities like congestion and pollution. Understanding the impacts of Uber is hence essential for policy makers so that cities can implement policies that can minimize the disruptive impacts without inhibiting individual mobility.

Notes for Nerds:
While this blog is mainly based from vs. Car – Clewlow & Mishra (2017), vs. Taxi – Berger et al. (2018) , vs. Transit – Hall et al. (2018), the results have been consistent across literature. For more on Uber, refer to Schaller (2018), Pew Research Center (2018), Rayle et al. (2016)

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