Regulating ride-sourcing markets

Abstract

Ride-sourcing platforms such as Uber and Lyft are prime examples of the gig economy, recruiting drivers as independent contractors, thereby avoiding legal and fiscal obligations. Although platforms offer flexibility in choosing work shifts and areas, many drivers experience low income and poor working conditions, leading to widespread strikes, protests and lawsuits against the platforms. In response, minimum wage regulation is adopted to improve drivers’ welfare. However, the impacts of this regulation on drivers as well as on travelers and platforms, remain largely unknown. While ride-sourcing platforms do not disclose the relevant data, state-of-the-art models fail to explain the effects of minimum wage regulation on market dynamics. In this study, we assess the effectiveness and implications of minimum wage regulation in ride-sourcing markets while simulating the detailed dynamics of ride-sourcing markets under varying regulation intensities, both with and without the so-called platform lockout strategy. We apply the model to Amsterdam due to the availability of detailed travel-demand data; while the framework is transferable to other cities, the magnitude of the results may vary with local market conditions. Our findings reveal that minimum wage regulation impacts substantially drivers income but may also lead to higher fares for travelers and threaten platforms’ survival. When platforms adopt a lockout strategy, their profitability significantly improves and drivers earn even more, although many others lose their jobs, and service level for travelers consequently declines. These findings highlight the complex trade-offs involved in regulating ride-sourcing market.