Sharing diseconomy: impact of the subsidy war of ride-sharing companies on urban congestion

As a typical example of the sharing economy, ride-sharing, in theory, can improve market efficiency and enhance the welfare of consumers and service suppliers. However, negative externalities resulted from ride-sharing, such as quasi-public goods, are often overlooked. In this paper, we used AutoNavi’s big data to measure traffic congestion in cities, and built DID, PSM-DID and DDD models to analyse the impact of the subsidy war among ride-sharing companies on the traffic congestion in Shanghai. The subsidy war led to an increase in the congestion index of Shanghai by 0.068–0.077, which was equivalent to an increase in transit time by 3.51%–5.53%. Excessive subsidies offered by ride-sharing companies to vie for market share will eventually distort the market. As a result, increased social costs will ultimately harm the well-being of the entire society, leading to diseconomy.