A Game-Theoretic Analysis of Unauthorized Surcharging Behavior in Taxi and Ride-Hailing Markets

Abstract

Against the backdrop of the long-term coexistence of street-hailing taxis and ride-hailing services, unauthorized surcharging, fare bargaining, and detours that effectively inflate passengers’ payments occur from time to time. Such practices may increase drivers’ revenues in the short run, but they can also trigger complaints, erode service trust, and raise regulatory enforcement costs. This paper abstracts the taxi and ride-hailing sectors as two competing players and develops a static complete-information game-theoretic model that incorporates regulatory penalties and reputational losses, in order to characterize the Nash equilibria under two strategies: compliant pricing and unauthorized surcharging. The analysis shows that whether unauthorized surcharging becomes prevalent in the industry hinges on the gap between the incremental gains from surcharging and the expected costs of punishment. When the additional payoff from surcharging exceeds the sum of the expected penalty loss upon detection and the reputational loss, both parties tend to adopt unauthorized surcharging, yielding the (unauthorized ,unauthorized ) equilibrium; otherwise, the (compliant ,compliant ) equilibrium emerges. Based on the derived threshold condition, the paper proposes policy implications including increasing the probability of detection, strengthening penalty severity, improving credit-based evaluation mechanisms, and enhancing platform–regulator collaborative governance.