The rise and fall of the bikesharing industry in China offers a cautionary tale about the risks of an unregulated market with a low entry barrier. It is well known that, while low entry barriers can promote competition and innovation, they may also lead to higher market volatility and potential challenges in achieving profitability due to intensified rivalry . There are also limited economies of scale to be had, making it exceedingly difficult to establish a monopoly. As Peter Thiel noted, “competition is for losers”‘ in such markets and good entrepreneurs should simply stay away from them.   However, writing off the bikesharing industry as unprofitable cannot be the only story here. After all, bikesharing has a genuinely positive societal impact and should have its place in many of our cities that are haunted by the disease of auto-dependency. The question is what, if anything, can be done to foster a healthy bikesharing market that is attractive to both users and private investors.  We set up to answer this question here.  You may download a preprint here, or read the abstract below.

Abstract: We model inter-operator competition in a dockless bikesharing (DLB) market as a non-cooperative game. To play the game, a DLB operator sets a strategic target (e.g., maximizing profit or maximizing ridership) and makes tactical decisions (e.g., pricing and fleet sizing). As each operator’s payoff and decision set are influenced by its own decisions as well as those of its competitors, the outcome of the game is a generalized Nash equilibrium (GNE). To analyze how competition may shape the choice of strategic targets, we further augment the game framework with a ranking scheme to properly evaluate the preference for different targets. Using a model calibrated with empirical data, we show that, if an operator is committed to maximizing its market share with a budget constraint, all other operators must respond in kind. Otherwise, they would be driven out of the market. When all operators compete for market dominance, Moreover, even if all operators agree to focus on making money rather than ruinously seeking dominance, profitability still plunges quickly with the number of players. Taken together, the results explain why the unregulated DLB market is often oversupplied and prone to collapse under competition. We also show this market failure may be prevented by a fleet cap policy, which sets an upper limit on each operator’s fleet size.