Disruptive Change in the Taxi Business: The Case of Uber

Cramer, Judd; Krueger, Alan B. · 2016 · OpenAlex-citations

DOI: 10.1257/aer.p20161002

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Summary

This paper examines the efficiency of ride-sharing services, specifically Uber, compared to traditional taxi services by analyzing capacity utilization rates. The study is motivated by the rapid growth of occupational licensing in the U.S., particularly in the taxi industry, which imposes strict regulations on driver entry, jurisdiction, and fares. While these regulations aim to ensure safety, they may reduce economic efficiency and raise consumer costs. The authors investigate whether the technological innovation and flexible labor models of ride-sharing platforms like Uber and Lyft offer a more efficient alternative to the heavily regulated taxi industry. The authors compare the capacity utilization of UberX drivers against traditional taxi drivers in five major U.S. cities: Boston, Los Angeles, New York, San Francisco, and Seattle. Capacity utilization is measured in two ways: the fraction of time a driver has a fare-paying passenger in the car while working, and the share of total miles driven with a passenger. Data for UberX drivers were obtained from Uber’s administrative database for the period between December 2014 and December 2015. Taxi data were sourced from various municipal reports and commissions, primarily from 2013, before Uber’s significant market penetration. This timing difference likely biases the results in favor of taxis, as they faced less competition during the data collection period. The study focuses on UberX, the largest service category, excluding commercial UberBlack drivers. The findings indicate that UberX drivers generally achieve significantly higher capacity utilization rates than taxi drivers. On average, UberX drivers have a passenger in their car approximately 50% of the time their app is active, whereas taxi drivers have a passenger between 30% and 50% of the time, depending on the city. Specifically, UberX drivers’ time-based utilization was 44% higher in Boston and 41% higher in San Francisco compared to taxis. In terms of mileage, UberX drivers in Los Angeles had a passenger for 64.2% of miles driven, compared to 40.7% for taxis, a 58% difference. Seattle showed a 41% higher mileage utilization for Uber. New York City was an outlier, where utilization rates for both groups were nearly identical. The authors attribute Uber’s higher efficiency to four factors: superior driver-passenger matching technology, larger network scale, inefficient taxi regulations that restrict cross-jurisdiction pickups, and flexible labor supply with surge pricing that better aligns supply with demand. The significance of these findings lies in the implications for market efficiency and occupational licensing. The higher utilization rates suggest that UberX drivers could theoretically charge 28% lower fares than taxis and earn the same hourly revenue, ignoring fixed costs. Furthermore, the lower empty-mile ratio for Uber drivers implies reduced traffic congestion and fuel consumption. The study concludes that disruptive technological change, such as ride-sharing apps, can effectively challenge and potentially reduce the inefficiencies caused by entrenched occupational licensing regimes, offering a pathway to more efficient labor markets and lower consumer costs.

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