Economic and Environmental Implications of Ride-Hailing and Vehicle Age Limits for Car Sales Markets

Problem definition: Ride-hailing poses significant challenges to Original Equipment Manufacturers (OEMs) as it offers an affordable mobility option, and thus may lead to lower new car ownership. Yet, its more intense competition with the sales of used cars in secondary markets (another low-cost mobility option) may reduce the cannibalization of new car sales to consumers, and therefore benefit OEMs. Moreover, ride-hailing creates additional new car demand for OEMs from drivers providing service on ride-hailing platforms. With these complex interactions, the effects of ride-hailing on the car sales markets and associated environmental impacts are not clear. Recent practices also indicate that ride-hailing platforms may impose vehicle age limits to increase the quality of cars providing service. A vehicle age limit may increase the total new car sales as it increases the drivers’ new car purchase frequency; however, as it requires drivers to replace their used cars with new ones, it also creates another source of used car supply to secondary markets, and thus may increase the cannibalization of OEMs’ new car sales to consumers.

Methodology: We establish a game-theoretic model to endogenize these interactions by accounting for the durable nature of cars and the effect of secondary market.

Managerial implications: We show that ride-hailing can in fact lead to higher new car ownership among consumers and total new car sales for the OEM; it can also increase the total environmental impact, despite its perceived environmental benefit from usage pooling. Moreover, despite increasing the quality of ride-hailing cars, vehicle age limits can lead to higher profit and total new car sales for the OEM, but they can also reduce the total usage impact of cars.