Free Uber

Josh Wright —  6 September 2012

From the NY Times:

Uber, a company based in San Francisco, is introducing a smartphone app to New York that allows available taxi drivers and cab-seeking riders to find one another. The company said the service would begin operating on Wednesday in 105 cabs — a bit less than 1 percent of the city’s more than 13,000 yellow cabs. Uber added that it hoped to recruit 100 new drivers each week.

But the program may have a significant problem: Taxi officials say that Uber’s service may not be legal since city rules do not allow for prearranged rides in yellow taxis. They also forbid cabbies from using electronic devices while driving and prohibit any unjustified refusal of fares. (Under Uber’s policy, once a driver accepts a ride through the app, no other passenger can be picked up.)

So, who else might be interested in fighting the rise of Uber and similar services?

The influx of apps appears to have created a moment of unity among yellow-taxi, livery and black-car operators, all of whom have raised concerns about the apps’ legality. Some industry officials said the commission was not acting forcefully enough; the result, said Avik Kabessa, the chief executive of Carmel Car and Limousine Service and a member of the board of the Livery Roundtable, a group representing livery drivers, is a New York City version of “the Wild West.”  An analysis conducted by the Metropolitan Taxicab Board of Trade, which represents yellow-taxi operators, identified what it deemed to be 11 potential violations of taxi guidelines in Uber’s model. These included charging a tip automatically, not allowing for cash payments and turning away passengers while being on duty.

Uber and similar services face similar threats in other cities, including here in DC, where Uber faced the “Uber Amendments” which would require Uber to charge five times the price of a cab!  At least the DC Commission was incredibly clear about the role of the regulation: to suppress competition and harm consumers:

Explanation and Rationale
· This section would clarify how sedan services operate.

· Sedans would be required to charge a minimum fare of 5 times the drop rate for taxicabs.

· Sedans would be required to charge time and distance rates that are greater as those for taxicabs.

· These requirements would ensure that sedan service is a premium class of service with a substantially higher cost that does not directly compete with or undercut taxicab service.

Here is Uber’s response to the DC Council:

The Council’s intention is to prevent Uber from being a viable alternative to taxis by enacting a price floor to set Uber’s minimum fare at today’s rates and no less than 5 times a taxi’s minimum fare. Consequently they are handicapping a reliable, high quality transportation alternative so that Uber cannot offer a high quality service at the best possible price. It was hard for us to believe that an elected body would choose to keep prices of a transportation service artificially high – but the goal is essentially to protect a taxi industry that has significantexperience in influencing local politicians. They want to make sure there is no viable alternative to a taxi in Washington DC, and so on Tuesday (tomorrow!), the DC City Council is going to formalize that principle into law.

There appears to be subsequent history, including a temporary shelving of the Amendment with the potential to bring it back on its own in the future.  Councilwoman and George Washington Law Prof Mary Cheh is a force behind the Uber Amendment and complained that a settlement could not be reached with Uber that would shed the requirement of having prices 5 times higher, but retain a price differential in the name of shielding taxi cabs from competition (emphasis my own):

Establishing a minimum fare is important to distinguish premium sedan service from traditional taxicab service and to prevent sedans from directly competing with or undercuting taxicabs.  Taxi companies want minimum fares that are much higher than what I am proposing in my amendment.  However, I believe that simply preserving the status quo is appropriate and reasonable.

I am deeply disappointed that Uber has decided that it no longer supports this amendment that we negotiated in good faith.  The taxi industry is one that has been regulated for a very long time.  If Uber wishes to operate taxis, then it is free to do so, but it should then be subject to the same regulations and requirements of taxis.

As I frequently point out on the blog, local barriers to entry cause substantially greater dissipation of consumer surplus than is conventionally acknowledged (e.g., here, here, and here).

HT: Hal Singer.

4 responses to Free Uber

  1. 

    Uber’s response of “It was hard for us to believe that an elected body would choose to keep prices of a transportation service artificially high” suggests they really made no effort to review the history of taxi regulation in the United States, which is almost entirely directed at keeping the prices of service high.

  2. 

    I get it that taxi service in NYC has weathered years of regulation. I get it that taxi/sedan/uber transportation in NYC can’t become a free-market free for all. But the fact remains that Uber is a really good idea. It’s Dial-7 2.0. One way or another, it’s going to find a way. But it’s certainly going to take some regulatory hits along the way.

  3. 
    Christopher Mufarrige 6 September 2012 at 5:47 pm

    “Establishing a minimum fare is important to distinguish premium sedan service from traditional taxicab service and to prevent sedans from directly competing with or undercuting taxicabs.”

    If only we plebeian consumers had the plenipotentiary knowledge these benevolent legislators possess, we would then be able to distinguish between premium and traditional services the way our leaders are able to!

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