Original post date: December 10, 2013
Article by: Ben Douglas
In my previous blogs, I discussed some of the legal and regulatory hurdles encountered by Uber, a Transportation Network Company (TNC) that provides on-demand taxi and limousine services using a smartphone app to connect passengers with nearby drivers. In this blog, I will analyze the regulatory framework encountered by the venture-funded startup company from several different perspectives.
Broadly speaking, the regulatory situation can be seen in two different ways. From Uber’s perspective, taxi companies such as Yellow Cab are jealously guarding their monopoly rents. The established taxi interests are anti-competitive, and regulators who carry out their wishes to quash new firms are unjust. (See this analysis by Sam Staley.) By bringing Uber into the regulatory fold, agencies such as the D.C. Taxi Commission are attempting to fix something that is not broken. Indeed, Uber is not even a transportation carrier; it’s a middleman not even in the same industry.
From the perspective of existing firms, however, Uber is subverting the rules, regulations, and fees that everyone else in the industry is forced to abide by. Far from jealously guarding their monopoly privilege, existing firms’ attempts to use government to sabotage Uber and other TNCs stem from the righteous pursuit of legal equality. In fairness, these upstarts should be subjected to the same rules, the same minimum fare statutes and the same licensing requirements that established firms are forced to comply with. Regulatory compliance is costly, and a market in which some firms’ costs are greater than others can hardly be deemed free, open, or just.
The other two parties in the “Uber wars” are consumers and regulators. Regulators theoretically exist to serve the needs of consumers, but analyzing their function through the lens of public choice can provide us with a few insights. In his seminal 1971 article “The Theory of Economic Regulation,” Nobel laureate George Stigler argues that regulators are sometimes “captured” by the firms they are supposed to be regulating. When this happens, they cease to serve the needs of consumers and begin serving the needs of the industry.
My previous blogs described real life examples of regulatory capture the Dallas, D.C., and L.A. taxi industries. These are by no means isolated incidents. Taxi regulations across the United States overwhelmingly protect established companies and drivers from competition. Local regulators harm potential new firms by erecting barriers to entry in the transportation services market, making it difficult to enter into business and compete with the establishment.
Potential new firms are not the only losers, however. Consumers suffer from the artificially constricted supply, higher prices, and worse service. Established taxi companies and TNCs are thus not the only conflicting parties in the Uber Wars. Consumers’ and regulators’ interests can be at odds as well.
Rectifying these regulatory ills will be the taxi industry’s greatest challenge in coming years. When casting your bets on who will win the Uber Wars, it is important to remember that lawmaking is a political process. If history is any indication, the victor will likely be the party with the greatest political clout.
While taxi franchises tend to have significant influence with municipal governments, Uber has shown remarkable strength and versatility. Who will emerge on top—or whether a compromise will be reached that leaves both parties unsatisfied, as was the case in California—is anyone’s guess.