Entrenched Interests Fight Innovation in Taxi Industry

Original post date: November 19, 2013
Article by: Ben Douglas

A revolutionary new smartphone app is changing the nature of the taxicab business, but stiff opposition from entrenched taxi companies risks keeping their innovations from benefiting customers.

Uber is a venture-capital funded startup company that provides on-demand taxi and limousine services using cellphones to connect passengers with nearby drivers. Billing is automatic and handled exclusively through the app, while a reputation system holds drivers (who are independent contractors and not Uber employees) accountable. The convenience used to cost a premium, with prices exceeding typical cab fares by 50-75%. This is no longer the case with UberX, marketed as “the low cost Uber,” which promises to undercut local cab rates by at least 10%. UberX’s rates beat the competition by 18% in D.C., 30% in Los Angeles, and 37% in San Diego.

Currently available in 33 cities across the Americas and 57 around the world, Uber has expanded rapidly since its 2010 debut in San Francisco. The ride has not been entirely smooth, however. Numerous legal potholes have arisen along the way. City and state governments across the US have had to reevaluate their ridesharing and common carrier laws. Additionally, existing taxicab companies have objected to Uber slipping through regulatory loopholes and gaining an unfair advantage.

Dallas Yellow Cab is one such firm. An investigative report by the Dallas Morning News uncovered deep ties between the established cab company, a “longtime political and financial benefactor to council members,” and city government officials. Working in conjunction, the two organizations arranged a multi-pronged assault on Uber, chiefly engineered by Yellow Cab’s attorney, John Barr.

An ordinance put before the City Council in late August that would make it difficult for Uber to operate in Dallas used Barr’s draft as the primary guide, according to an ensuing investigation by City Hall. A vote was delayed due to this investigation and several council members’ objections.

Council member Phillip Kingston raised the following objection: “[S]taff has slipped the issue onto the agenda for next week at the last possible moment and put it on the consent agenda, meaning not scheduled for individual consideration or debate. It hasn’t been briefed to Council or even to the Transportation committee, and it’s a policy change, entirely in favor of the taxi lobby, that comes with a not insignificant risk of getting the city sued.”

Meanwhile, according to the Morning News report, Barr contracted former FBI agent and private investigator Debbie Burns to conduct an undercover investigation into Uber in an attempt to find incriminating behavior. Subsequent police investigations failed to detect insurance and licensing violations. Regardless, the city issued citations to 31 drivers for, among other charges, “lacking authority to operate in the city.”

Charges against all 31 drivers were dismissed just as City Hall released its investigation into the City Council’s handling of the Uber matter. The report acknowledged “several wrong decisions and bad judgments” and laid blame at the feet of interim City Manager A.C. Gonzalez, who apologized to the mayor and City Council for bypassing them. Mayor Rawlings characterized Gonzalez’s handling of the situation as “highly disappointing,” but said that no “potential illegal or unethical activity or behavior” was found.

For Uber, the battle may have been won, but the war is far from over. Across the United States, Uber faces legal opposition from entrenched taxicab cartels and the regulatory agencies fighting on their behalf.

About DeVoe Moore Center

The DeVoe L. Moore Center is conducts economic research and policy analysis focused on state and local policy issues and is located in the College of Social Sciences and Public Policy at Florida State University in Tallahassee. As an educational institution the DMC provides professional research experience to undergraduate and master’s students through an extensive program of internships and independent study, preparing them for a future in public policy, economic development, public sector accountability and entrepreneurship.
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