Collusion Between Ridesharing Platforms Leads to Exploitative Wages for Drivers

Core Concepts

Ridesharing platforms in a duopoly market can collude to pay the minimum wages to drivers, despite the drivers' importance to the platforms' operations.

Abstract

The article presents a game-theoretic model of the ridesharing economy using mathematical program networks (MPNs) to analyze the strategic interactions between two competing ridesharing platforms, drivers, and passengers. The key insights are: The model captures the same-side and cross-side network externalities inherent in the ridesharing economy, such as the positive externality between drivers and passengers, and the negative externality within each group. Under the assumption of a strong non-trivial equilibrium where all participants (platforms, drivers, and passengers) are active, the analysis shows that the only way for both platforms to earn non-zero profits is if they collude to pay the drivers the bare minimum wages. This collusion between the platforms explains the real-world observation of low driver wages, despite the drivers being crucial to the platforms' operations. The platforms can exploit the drivers by colluding to keep wages low, while still maintaining a stable duopoly. The model provides a theoretical basis to understand the deficiencies in existing policies surrounding the gig economy and offers insights for policymakers interested in protecting the welfare of gig workers.

Stats

The average distance of a trip is D = 1. The wait cost multiplier is λ. The gas cost per mile is g.

Quotes

"Gig economy consists of two market groups connected via an intermediary. Popular examples are rideshares where passengers and drivers are mediated via platforms such as Uber and Lyft." "Our model suggests that when the drivers and riders engage in a sequential subgame after the prices and wages have been exogenously determined by the platforms, there is indeed a strong inclination for the entire market to tip over into a monopoly which should, theoretically, collapse the equilibrium to one where it's impossible for any platform to make a profit."

Key Insights Distilled From

Decreasing Wages in Gig Economy: A Game Theoretic Explanation Using Mathematical Program Networks

by Pravesh Koir... at arxiv.org 04-18-2024

https://arxiv.org/pdf/2404.10929.pdf

Deeper Inquiries

How could policymakers design regulations to prevent collusion between ridesharing platforms and ensure fair wages for drivers?

To prevent collusion between ridesharing platforms and ensure fair wages for drivers, policymakers can implement the following regulations: Antitrust Regulations: Enforce antitrust laws to prevent platforms from colluding on pricing and wages. This would promote healthy competition in the market and prevent platforms from forming monopolies or engaging in anti-competitive behavior. Transparency Requirements: Mandate transparency in pricing and wage structures. Platforms should disclose how they calculate driver earnings and passenger fares to ensure fairness and prevent manipulation. Minimum Wage Standards: Set minimum wage standards for drivers to ensure they receive fair compensation for their work. This would prevent platforms from exploiting drivers by paying them below a living wage. Prohibition of Collusive Practices: Explicitly prohibit collusive practices between platforms, such as price-fixing or wage-fixing agreements. Implement strict penalties for violations to deter platforms from engaging in collusion. Whistleblower Protections: Establish mechanisms for drivers to report any suspected collusion or unfair practices by platforms without fear of retaliation. Whistleblower protections can encourage drivers to come forward with information. Independent Oversight: Create an independent regulatory body to monitor the ridesharing industry and investigate any allegations of collusion. This oversight can help ensure compliance with regulations and prevent unfair practices.

What are the potential unintended consequences of policies aimed at protecting gig workers, and how can they be mitigated?

Potential unintended consequences of policies aimed at protecting gig workers include: Reduced Flexibility: Stricter regulations may limit the flexibility that gig workers value. To mitigate this, policymakers can design regulations that strike a balance between worker protections and flexibility, allowing gig workers to choose their own schedules while still receiving benefits. Increased Costs for Platforms: Implementing worker protections may lead to increased costs for platforms, which could result in higher prices for consumers. To mitigate this, policymakers can explore ways to offset these costs, such as providing tax incentives or subsidies to platforms that comply with regulations. Impact on Innovation: Overly restrictive regulations could stifle innovation in the gig economy. To prevent this, policymakers should engage with industry stakeholders to develop regulations that support innovation while protecting worker rights. Shift to Automation: In response to increased costs and regulations, platforms may accelerate the shift towards automation, leading to job displacement for gig workers. To mitigate this, policymakers can invest in reskilling programs and job transition assistance for affected workers. Market Consolidation: Stricter regulations may favor larger platforms that have the resources to comply, leading to market consolidation and reduced competition. Policymakers can address this by promoting competition through measures like open data sharing and interoperability requirements.

How might the dynamics of the gig economy change if platforms were required to provide benefits and protections to their workers, similar to traditional employment models?

If platforms were required to provide benefits and protections to their workers similar to traditional employment models, the dynamics of the gig economy could change in the following ways: Increased Worker Stability: Gig workers would have more stability and security with access to benefits like health insurance, paid leave, and retirement plans. This could lead to higher worker retention rates and improved job satisfaction. Reduced Income Disparities: Providing benefits and protections could help reduce income disparities among gig workers, ensuring that all workers have access to essential benefits regardless of their employment status. Improved Worker Rights: Workers would have stronger legal protections and rights, leading to better working conditions and fair treatment. This could result in a more equitable and respectful relationship between platforms and workers. Shift in Platform Business Models: Platforms may need to adjust their business models to accommodate the additional costs of providing benefits. This could lead to changes in pricing structures, service offerings, and platform policies. Regulatory Compliance: Platforms would need to ensure compliance with labor laws and regulations, which could result in increased oversight and accountability. This could lead to a more regulated and transparent gig economy. Overall, requiring platforms to provide benefits and protections to their workers could lead to a more sustainable and equitable gig economy, benefiting both workers and the platforms themselves.