Platform Competition in the Sharing Economy: Understanding How Ride-Hailing Services Influence New Car Purchases

Abstract

Abstract Ride-hailing services provide not only alternative transportation for passengers but also job opportunities for potential drivers, resulting in both negative and positive effects on new car purchases. Our study assesses the impact of ride-hailing platforms’ market entry on new car purchases in the presence of platform competition. Our data is a monthly panel data on new car registration plates from 2013 to 2015, during which two leading ride-hailing platforms (Didi Chuxing and Uber) rolled out their services across select cities in China. We find that, while the entry of a single ride-hailing platform led to a decline in new car purchases, platform competition mitigated the negative impacts of platform entries. Our explanation is that the two competing platforms may have provided subsidies to drivers such that more people purchased new cars in order to sign up as drivers. By leveraging brand heterogeneity, our analysis finds supporting evidence that platform competition has resulted in increased sales of those car brands that are commonly adopted by ride-hailing drivers. Our study contributes to the literature on pricing strategies and subsidy allocation for two-sided markets by providing empirical evidence from the ride-hailing market. It suggests that companies’ competitive strategies need to account for consumer expectations and learning in the presence of strong network effects.