Flexible Ubers and Fixed Taxis: the Effect of Fuel Prices on Car Services

This paper is the first to empirically compare the impact of fuel price on ridership of taxicabs and transportation network companies (TNCs) like Uber and Lyft. We build a theoretical model of the car service market to demonstrate how drivers under the two systems may have different reactions to fuel prices. Although all drivers pay for their own gasoline, TNC drivers have more flexibility in reducing their supply when operating costs are relatively higher. Due to greater regulation, taxi drivers are more fixed in their supply but receive a “rigidity dividend” from paying greater gas costs while profiting from the reduced competition when TNC drivers leave the market. Through ordinary least squares and seemingly unrelated regression estimation, we find that a 1-day 1% increase of fuel prices in New York City is associated with a 0.367% to 0.486% decrease in trips from TNCs, while the quantity of taxi trips will slightly increase by 0.033% to 0.088%. Empirical results additionally show a diminishing marginal effect for the fuel price elasticity of TNC trips.