The Price of Fragmentation in Mobility-on-Demand Services

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, less is known about the cost of market fragmentation, i.e., the impact on overall welfare due to splitting 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 supply rebalancing costs 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 these findings on how such platforms should be regulated.