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Driving Toward Monopoly: Regulating Autonomous Mobility Platforms as Public Utilities By Joanne Wong A. B. in Social Studies Harvard College (2013) Submitted to the Department of Urban Studies and Planning in partial fulfillment of the requirements for the degree of Master in City Planning at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY June 2018 ( 2018 Joanne Wong. All Rights Reserved. The author hereby grants to MIT the permission to reproduce and to distribute publicly paper and electronic copies of the thesis document in whole or in part in any medium now known pkereafter created. Author Signature redacted ga rdae rtment of Urban Studies and Planning (Signature redacted May 24, 2018 Certified by I Professor Amy Glasmeier Depa rtment of Urban Studies and Planning / Thesis Supervisor Accepted by- Signature redacted Professor of the Practice, Ceasar McDowell MASSACHUSETTS INSTITUTE Chair, MCP Committee OF TECHNOLOGY Department of Urban Studies and Planning JUN 18 2018 LIBRARIES ARCHIVES Driving Toward Monopoly: Regulating Autonomous Mobility Platforms as Public Utilities By Joanne Wong Submitted to the Department of Urban Studies and Planning on May 24, 2018 in partial fulfillment of the requirements for the degree of Master in City Planning Abstract Autonomous vehicles (AV) have captured the collective imagination of everyone from traditional auto manufacturers to computer software startups, from government administrators to urban planners. This thesis articulates a likely future for the deployment of AVs. Through stakeholder interviews and industry case studies, I show that there is general optimism about the progress of AV technology and its power to positively impact society. Stakeholders across sectors are expecting a future of autonomous electric fleets, but have divergent attitudes toward the regulation needed to facilitate its implementation. I demonstrate that, given the immense upfront capital investments and the nature of network effects intrinsic to data-intensive platforms, the autonomous mobility-as-a-service system is likely to tend toward a natural monopoly. This view is corroborated by key informants as well as recent industry trends. In order to better anticipate the characteristics of this emerging platform, I look back at the developmental trajectories of two classic public utilities - telecommunications and the electricity industry. I argue that the aspiring monopolists in autonomous mobility, like icons in these traditional industries, will succeed in supplanting a legacy technology with a new, transformative one, and use pricing and market consolidation tactics to gain regional dominance. The discussion on monopoly power is then adapted to the new business models of internet-enabled technology giants, and I examine two additional industry case studies in Google and Amazon. I argue that the autonomous mobility platform will first be designed to prioritize scale over everything else, including profits, and that firms are likely to pursue both horizontal and vertical integration strategies to achieve sustained market leadership. I conclude by recommending next steps for reining in platforms that may harm the public interest, and encourage planners to traverse disciplinary boundaries to better facilitate discussions between innovators and regulators. Thesis Advisor: Amy Glasmeier Thesis Reader: David Hsu Professor of Economic Geography & Associate Professor of Urban & Regional Planning Environmental Planning 3 Acknowledgements Many thanks to my advisor, Amy Glasmeier, for her trust, incisive questions, and unwavering support that made this research project a real joy to complete; To my reader, David Hsu, for his enthusiasm and reading lists that helped to clarify the major ideas here; To my interviewees, for taking the time to share their perspectives and brainstorm the future with me; To my classmates at DUSP, for their kindness and hopeful energy; To Team Octant, for piquing my interest in autonomous vehicles and being ever optimistic; To my family, friends, and B26, for sustaining me through another thesis; And finally, to Jason, for being a gift and an anchor in this transformative season. I hope you read this thesis one day. 4 Table of Contents Chapter 1: Introduction.......................................................................................... 7 A Prim er on A utonom ous Vehicles.......................................................................................................... 7 Regulating a System of Shared Autonomous Vehicles.......................................................................... 14 Research Q uestions and M ethodology.................................................................................................... 18 O ve rvie w o f the T h e sis .................................................................................................................................. 20 Chapter 2: The Inevitability of Autonomous Electric Fleets ................................. 22 The Future Will be Autonomous Electric Fleets..................................................................................... 22 T h re e C ate g o ries o f "B e lieve rs" .................................................................................................................. 28 S u m m a ry ........................................................................................................................................................ 3 2 Chapter 3: Why the Autonomous Mobility Platform Will Be A Natural Monopoly..34 A P rim e r o n N atu ra l M o no p o ly.....................................................................................................................34 Why the Autonomous Mobility Platform Will be a Natural Monopoly .................................................. 38 Natural Monopolies as "Common Carriers" ......................................................................................... 45 Chapter 4: What Classic Common Carriers Teach Us About the Future AV Platform .................................................................................................................................. 4 6 Brief History and Rationale of Regulating Utilities ................................................................................ 47 Transformative Nature of the Technology...............................................................................................48 S u p p la ntin g an O ld Syste m .......................................................................................................................... 5 1 Regulated Pricing and Price D iscrim ination............................................................................................ 54 R e g io n a l D o m in a n c e ..................................................................................................................................... 5 8 S u m m a ry ........................................................................................................................................................ 6 2 Chapter 5: What Today's Technology Giants Teach Us About the Future AV P latfo rm .................................................................................................................... 6 4 A d ap ting to N ew M o no p o lies ..................................................................................................................... 65 How is This N ew M onopoly D ifferent?...................................................... ........................................... 68 Sca le O ve r Eve ryth ing ..................................... .................................................. ...................................... 69 The Q uest to Becom e Infrastructure ........................................................................................................ 73 A p p licatio ns to the A V C ase ......................................................................................................................... 78 T he G o o g le/U b e r M o d e l .............................................................................................................................. 79 5 T he A m azo n/Lyft M o d e l ................................................................................................................................ 8 1 Downsides and Cautions .............................................................................................................................. 83 S u m m a ry ........................................................................................................................................................ 8 4 C hapter 6: M oving Forw ard ..................................................................................... 86 R efle ctio n a nd S u m m a ry ...............................................................................................................................87 P o licy Im p lic a tio n s .........................................................................................................................................9 1 F u rth e r Q u e stio n s ..........................................................................................................................................9 3 M o v in g F o rw a rd .............................................................................................................................................9 3 Bibliography ................................................................................................