Abstract:
Motorcycles are by far the most popular form of motorized transportation in Indonesia, and are used to provide taxi-like service called ojek as well. In 2014, the two biggest providers of app-based, online booking and payment for conventional (four-wheel) taxis in Indonesia began to offer online booking and payment for motorcycle taxi rides as well. These services proved very popular, cutting sharply into the use and earnings of conventional motorcycle taxis. The Indonesian government was unsure whether and how it should regulate the new mode of transport, which it feared was adding to traffic congestion and accidents.
Learning Objective:
This case was originally written for an executive program or masters-level course on transportation policy to support a discussion of alternative rationale and strategies for regulating urban transport and to allow participants to debate the pros and cons of motorcycles, which are becoming a major form of transportation in many developing countries.
The case could also be used in a masters-level course on applied microeconomics as an introductory or capstone class on the concept of market failure. It provides several examples of externalities (safety, congestion), information asymmetry (driver and vehicle licensing), cognitive limitations (helmets), and monopoly (network effects).
