Ride-hailing apps should work with taxis to reduce the price of anarchy

The writer teaches at MIT and is a founding partner at the design and innovation office Carlo Ratti Associati

Imagine Travis Kalanick, the ousted founder of Uber, opening his company’s app in New York and finding a surprise: the presence of what he used to call an “asshole named Taxi”. After a decade of lawsuits and bitter confrontations, Uber is making taxis an option for its users in the Big Apple.

This move is both a marriage of necessity and convenience, because Uber is trying to compensate for an expensive driver shortage. However, recent research at MIT shows that co-ordination between ride-hailing services can benefit entire cities by reducing traffic and slashing carbon emissions.

Why does it help for Ubers and taxis to work together? Today, an Uber customer might hail a car two miles away, even though there is a taxi just around the corner. Non-co-ordination means larger fleets and longer trips, and gives an unfair advantage to bigger players. Cities are paying what, in economics and game theory, is known as “the price of anarchy” — in which each selfish actor (in this case, ride-hailing companies) optimises its own performance at the expense of overall efficiency.

Our research has quantified the price of anarchy for urban mobility in Singapore, New York, San Francisco, Vienna and Curitiba. Analysing hundreds of millions of trips, we found that, taking into account the overall density of travel and the efficiency of operators, non-co-ordination has a bigger impact in some cities than others. In Curitiba, Brazil, for example, non-co-ordination could result in 67 per cent larger fleets on the road. The price of anarchy is high, generating extra carbon emissions in a world that is already in the grips of a climate emergency.

But imagine a world in which, instead of wavering between Uber, Lyft or a regular taxi, we could open a single app that figures out which service is closest and most affordable. Upon choosing, we would be redirected into the app of our chosen provider, enjoying all of its unique features for rating, tipping and more. Digital flight aggregators, such as Expedia or Travelocity, already work this way. Think of the same principle applied to a city.

Some ride-hailing companies might not want to collaborate, so governments should take the lead. After all, urban transport has long required regulation. Taxi commissions around the globe manage the supply of cabs by awarding medallions that permit drivers to operate. Today, municipal governments need to guide companies such as Uber into a new world (as they started doing with the Open Mobility Foundation). With their help, the new market for ride-hailing services can develop into a mature and socially responsible feature of the lives of our cities.

Would tackling the inefficiencies of non-co-ordination decrease competition? In some instances, it is true that the price of anarchy can be reduced by a centralised, top-down approach. However, in the case of urban ride-hailing, better access to information would result in both increased competition and favourable social outcomes. On an integrated digital platform passengers will be able to compare waiting times, prices and carbon emissions seamlessly. A tax on “deadheading” — when cars travel without passengers between drop-offs and pick-ups — could improve sustainability by incentivising passengers to pick the closest vehicle.

Drivers would benefit, as they could migrate more easily from one ride-hailing provider to another. Instead of being forced to drive for whichever firm controlled the most customers, they could work for whoever treated them best.

Uber’s recent move in New York should be just the first step of a government-led effort to reimagine urban mobility with integrated digital platforms. When it comes to something as fundamental as transport, cities need not, should not and cannot afford to pay the price of anarchy.

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