Pricing Schemes and Seller Fraud: Evidence from New York City Taxi Rides

In expert markets, different pricing schemes generate different financial incentives for sellers to defraud consumers. Using rich microdata on New York City taxi rides, we examine the differences in traveled distance, duration, and fare between trips taken by non-local passengers and those by comparable local passengers. We demonstrate that, for trips subject to a two-part tariff, the discrepancies are more considerable when the variable rate is higher, or when the post-dropoff occupancy is expected to be lower; furthermore we find that the impact of the post-dropoff occupancy is more pronounced when the variable rate is higher. However, for trips subject to a flat fare scheme, neither the fare rate nor the expected post-dropoff occupancy result in significant disparity between local and non-local passengers.