The Price of Fragmentation in Mobility-on-Demand Services

TL;DR

This paper investigates how market fragmentation among mobility-on-demand platforms impacts overall efficiency, revealing conditions under which fragmentation costs become negligible or unbounded, with implications for regulation.

Contribution

It quantifies the cost of platform fragmentation in MoD services and characterizes phase transitions in efficiency loss depending on demand patterns.

Findings

Fragmentation cost can vanish or grow unbounded depending on demand.

A phase transition occurs in the price of fragmentation under large-market scaling.

Conditions are provided to determine the regime for any given system.

Abstract

Mobility-on-Demand platforms are a fast growing component of the urban transit ecosystem. Though a growing literature addresses the question of how to make individual MoD platforms more efficient, much less is known about the cost of market fragmentation, i.e., the impact on welfare due to splitting the demand between multiple independent platforms. Our work aims to quantify how much platform fragmentation degrades the efficiency of the system. In particular, we focus on a setting where demand is exogenously split between multiple platforms, and study the increase in the supply rebalancing cost incurred by each platform to meet this demand, vis-a-vis the cost incurred by a centralized platform serving the aggregate demand. We show under a large-market scaling, this Price-of-Fragmentation undergoes a phase transition, wherein, depending on the nature of the exogenous demand, the additional cost due to fragmentation either vanishes or grows unbounded. We provide conditions that characterize which regime applies to any given system, and discuss implications of this on how such platforms should be regulated.