By George Robert Barker (Australian National University) & Martin Cave (London School of Economics)
The risk that a two-sided market with strong indirect network effects may tip into a monopoly is well-known. The questions of whether this will happen in practice, whether this creates problems, and if so what can be done to address those problems, are less well investigated. This paper addresses these questions in relation to ride-hailing apps in the UK, also drawing on limited data observations in other countries.
The UK market place exhibits a large number of car-based transport services which differ in the degree of vertical integration exhibited. In some, the intermediary service of car booking is combined with the provision of the physical service; in the case of a pure ride-hailing app, it is separated.
UK and other countries’ data show that the emergence of ride-hailing apps has had a major effect on the wider market place; such entrants gaining substantial share in a growing market place. The data do not yet permit a firm conclusion as to the inevitability of market tipping in ride-hailing, but the possibility remains.
The paper considers alternative regulatory measures which might be prepared or adopted against the possibility of such tipping. These include revisions of existing regulation to reduce distortions in the wider market place; new interventions including enhanced data reporting; measures to prevent dominant firms from injuring their rivals by such practices as requiring the single-homing of drivers; data-sharing; and price control.