Autonomous Vehicle Market Design

Abstract

We develop an economic model of autonomous vehicle (AV) ride-hailing markets in which uncertain aggregate demand is served with a combination of a fixed fleet of AVs and an unlimited potential supply of human drivers (HVs). We analyze market outcomes under two dispatch platform designs (common platform vs. independent platforms) and two levels of AV competition (monopoly AV vs. competitive AV). A key result of our analysis is that the lower cost of AVs does not necessarily translate into lower prices; the price impact of AVs is ambiguous and depends critically on both the dispatch platform design and the level of competition. In the extreme case, we show if AVs and HVs operate on independent dispatch platforms and there is a monopoly AVs supplier, then prices are even higher than they are in a pure HV market. When AVs are introduced on a common dispatch platform, we show that whether the equilibrium price is reduced depends on the level of AV competition. If AVs are owned by a monopoly firm, then the equilibrium price is the same as in a pure HV market. In fact, the only market design that leads to unambiguously lower prices in all demand scenarios is when AVs and HVs operate on a common dispatch platform and the AV supply is competitive. Our results illustrate the critical role market design and competition plays in realizing potential welfare gains from AVs.