By Justin Langford
The emergence of ridesharing has revolutionized the transportation industry. By providing an online interface to connect passengers to drivers nearby, Transportation Network Companies (TNCs) such as Uber and Lyft offer an inexpensive and convenient alternative to traditional taxi services. The rise of TNCs, however, has brought about criticism among legislators and attempts to regulate the ridesharing industry.
According to the Texas A&M Transportation Institute, 48 states and Washington DC have enacted some form of TNC legislation. With the exception of Vermont and Oregon, all states have laws addressing insurance requirements for drivers. Forty-three states “have laws that address operating permits and fees, background check requirements, operational standards, and protections for passengers.” Many cities and counties also impose local regulations on TNCs.
Some policymakers argue that TNCs ought to be held to the same regulatory standards as taxis and advocate for the implementation of additional safety standards, increased licensing fees, per-ride taxes to curb congestion, price caps to prevent surges in rates, and increased barriers of entry for drivers. Without evidence they actually improve performance, while well-intentioned, regulations borne out of a desire to benefit the general welfare of citizens may generate more harm to consumers than good.
Studies on taxi regulation have yielded mixed results for customers. A report by the Connecticut General Assembly concludes that deregulation leads to negative consequences for drivers and consumers alike. It cites a 1993 Price Waterhouse study, which claims that deregulation in the taxi industry results in increased fares for cabs, lower vehicle quality, and poorer customer service along with an uptick in the number of drivers who refused services to customers. Other studies find that regulations limit the supply of cabs, decrease the quality of service, and increase costs for consumers.
While some evidence exists to suggest that ridesharing services increase congestion, TNCs provide economic benefits to the community that outweigh these concerns. According to Lyft’s 2017 Economic Impact Report, Lyft users reported spending over $750 million in the local economy that they otherwise wouldn’t have thanks to the ridesharing service. Additionally, drivers collectively earned $1.5 billion in revenue, further stimulating economic growth.
TNCs operate in an inexpensive and reliable manner even without the presence of government regulations. A study conducted by the University of California Transportation Center used consumer data to compare the quality of services provided by traditional taxi services with that of ridesourcing platforms such as Uber and Lyft. The researchers found the wait time to be significantly shorter for ridesourcing apps than for taxis. While 35 percent of taxi riders reported waiting 10 minutes or less for their ride, 90 percent of ridesourcing customers said drivers consistently arrived in 10 minutes or less. Of those who used ridesourcing platforms, 67 percent of riders reported their ride arriving in five minutes or less.When asked why they used ridesourcing apps, 35 percent of respondents reported “ease of payment” as their top reason along with “short wait time” (30 percent) and that ridesourcing was the “fastest way to get there [to their final destination]” (30 percent). Another 12 percent of respondents listed “comfort/safety” and 10 percent stated cheap costs of transportation as other reasons to ride hail.
The practice of self-regulation among TNCs often mitigates concerns for consumer safety raised by policymakers. Self-regulation can be defined as “the reallocation of regulatory responsibility to parties other than the government.” For instance, Uber enables customers and drivers to rate ride experiences in order to ensure accountability. Drivers who dip below a certain rating may be barred from driving. In Ohio, drivers must maintain a 4.5 star rating in order to drive for Uber. Uber also imposes national and city-specific requirements on drivers. In Tallahassee, cars driven for Uber must be four-door vehicles that are 15 years or younger and in “good condition with no cosmetic damage.” The company also conducts strict background checks on drivers.
A self-regulated market can also naturally adjust product prices to the supply of available resources and quantity of consumer demand. Self-regulation allows TNCs to implement dynamic pricing, that is, to reduce prices in times of decreased consumer demand and raise prices during increased demand. Dynamic pricing is a lot more difficult for taxis to implement, by contrast, as they charge standard flat rates on top of mileage-based fees.
Research on how self-regulation affects congestion in cities is limited. However, studies suggest that self-regulation can correct supply and demand forces via real-time price adjusting and consumer feedback mechanisms. The cure to fix market failures is not regulation, but self regulation.