What do walking and e-hailing bring to scale economies in on-demand mobility?

Abstract

This study investigates the impact of walking and e-hailing on the scale economies of on-demand mobility services. An analytical framework is developed to i) explicitly characterize the physical interactions between passengers and vehicles in the matching and pickup processes, and ii) derive the closed-form degree of scale economies (DSE) to quantify scale economies. The general model is then specified for conventional street-hailing and e-hailing, with and without walking before pickup and after dropoff. We show that, under a system-optimum fleet size, the market always exhibits economies of scale regardless of the matching mechanism and the walking behaviors, though the scale effect diminishes as passenger demand increases. Yet, street-hailing and e-hailing show different scale economies in their matching process. While street-hailing matching shows a constant DSE of two, e-hailing matching is more sensitive to demand and its DSE diminishes to one when passenger competition emerges. Walking, on the other hand, has mixed effects on the scale economies: while the reduced pickup and in-vehicle times bring a positive scale effect, the extra walking time and possible concentration of vacant vehicles and waiting passengers on streets negatively affect scale economies. All these analytical results are validated through agent-based simulations on Manhattan with real-life demand patterns.