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

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.

Key words and phrases:

• causal inference
• competitive strategies
• consumer expectations
• Didi Chuxing
• ride-hailing
• staggered difference-in-differences
• synthetic control methodology
• Uber
• car market
• car-riding platforms

Acknowledgements

An earlier version of this paper was presented at the Strategy, Information, Technology, Economics, and Society (SITE) Minitrack at the 2019 HICSS Conference. We would like to thank Rob Kauffman and Thomas Weber (Minitrack co-chairs) for nominating it for the Organizational Systems and Technology (OST) track’s best paper award. The authors are indebted to Stuart John Barnes for his help in revising and editing an earlier draft. We thank three anonymous HICSS reviewers, three anonymous JMIS reviewers, the editors of this special issue, and the participants at the SITES Minitrack at the 2019 HICSS Conference for their valuable comments on this paper.

Notes

1. According to the administrative divisions of China, there are three levels of cities: municipalities, prefecture-level cities, and county-level cities. As of the end of our data period (December 2015), China had four municipalities, 291 prefecture-level cities, and 361 county-level cities.

2. The requirements for cars to join Didi Chuxing are listed at http://www.upxuan.com/join/136.html (in Chinese).

3. The popularity of these brands has been discussed on some Chinese websites, such as the following: http://www.sohu.com/a/270014340_585306; https://www.d1ev.com/carnews/daogou/47265.

4. http://www.upxuan.com/reward/111.html. The website is written in Chinese and describes Didi Chuxing’s driver subsidy policy as of August 2015.

Additional information

Funding

Generous financial support was provided by the National Natural Science Foundation of China [grant numbers 71872061, 71702045], the Humanities and Social Sciences Foundation of the Ministry of Education in China [grant numbers 16YJC630028, 17YJC630047], the Consumer and Organizational Digital Analytics (CODA) Research Centre at King’s College London, and Fundamental Research Funds for the Central Universities [grant numbers 2018B20614, 2017B14414]. The authors are listed alphabetically.

Notes on contributors

Yue Guo

Yue Guo ([email protected]) is on the faculty at Southern University of Science and Technology. He is also a joint professor and executive dean at the Aurora International Research Institute, a research institute involving the Digital Analytics Research Centre at Hohai Business School at Hohai University, King’s College London and the Chinese Academy of Sciences. His research interests include data analytics, online platforms and social networks. His work has appeared in Harvard Business Review, Information Systems Journal, Information & Management, Journal of Information Technology and others. He has received multiple research grants from the National Natural Science Foundation of China.

Xiaotong Li

Xiaotong Li ([email protected]; corresponding author) is a professor of information systems at the University of Alabama in Huntsville. His research has appeared in major journals including the Journal of Management Information Systems, Communications of the ACM, Marketing Science, and others. He won the best paper of the year award in 2006 from the IEEE Engineering Management Society (with Rob Kauffman). He has served on the editorial board of Marketing Science and is an associate editor of Electronic Commerce Research and Applications.

Xiaohua Zeng

Xiaohua Zeng ([email protected]) is an associate professor of marketing at the Peking University HSBC Business School. She obtained a doctorate in business administration (marketing) from the University of British Columbia. Her research interests include online social networks, virtual identities, competitive strategies, and business ethics. Her work has appeared in such journals as Information Systems Research, International Journal of Research in Marketing, and others.