Uber Cab App Threatens Death of Taxi Dinosaurs

Uber Cab App Threatens Death of Taxi Dinosaurs

People can run into two problems when they need to find a taxi. The first is that they don’t know whether a taxi will be available. The second is that they don’t know when a taxi will be available.

Uber Technologies Inc., a San Francisco-based company, was set up to solve both problems. You can download its application, and it will find out where you are and come pick you up. It will also tell you when it is coming.

In fact, the app comes with a screen that shows exactly where the vehicle is, so you can watch as it makes its way toward you. Once a credit card is in the system, the customer doesn’t have to pay with cash or decide on a tip; everything is automatic.

The company uses crowdsourcing to promote quality. After every trip, customers are asked to rate their drivers, who are well aware of that fact, which creates incentives to do the job well. Customers can see the average rating of their driver before the vehicle arrives.

In some cities, Uber’s services are limited to town cars, which are luxurious and cost more than standard taxis. Some people are willing to pay extra for one. Others aren’t delighted by the higher price. In some cities, you can use the app to order a taxi at the usual rate. The difference between Uber and the standard taxi service is that you can be essentially certain that the taxi is coming and when it will be there.

Blocking Competition

Uber is now available in numerous cities, including Atlanta, Boston, Chicago, Dallas, Detroit, Los Angeles, New York, Philadelphia, San Diego, San Francisco and Washington. The good news is that it is serving tens of thousands of customers (and creating jobs in the process).

The less good news is that it is having to fight a series of absurd regulatory battles, which provide a revealing case study in interest-group efforts to block new entrants and innovative approaches.

The basic problem is that the taxi industry is intensely regulated. One goal of regulation isn’t to protect consumers. It is to entrench current providers and to limit competition.

With respect to taxis, some states have a system that isn’t altogether different from socialist-style planning. Some longstanding regulations have the purpose and effect of squelching new entrants. And in the face of fresh competition, the industry has been creative and occasionally shameless.

For example, Miami has long imposed something close to a ban on innovative services, by requiring an $80 minimum fare for limousines. Las Vegas has also imposed a high minimum, with the administrator of the Nevada Taxicab Authority ominously declaring that an “unregulated, unlicensed quasi-taxi operator is a concern.”

The Colorado Public Utilities Commission has proposed rules designed to prevent Uber from operating in the state — for example, by prohibiting sedan companies from charging by distance or from being within 200 feet of a restaurant, hotel or bar.

For its part, the District of Columbia has been seriously considering technological payment requirements that might well shut down Uber’s taxi service. In Chicago, regulations have been proposed that would ban public passenger vehicle licensees (such as Uber) from using any device “to measure and calculate passenger fares based on distance and/or time traveled.”

To date, few states and localities have imposed such draconian prohibitions, but restrictions remain under active consideration. In a free market, of course, governments should usually welcome new entrants, on the ground that competition is in the interest of consumers.

Regulatory Dinosaur

True, there is an important place for rules designed to promote safety and to prevent fraud or deception. But regulation of the taxi industry goes far beyond those goals. That regulation is a dinosaur; it should become extinct.

Uber’s innovative approach raises a still more fundamental question. In countless domains, people have to spend a great deal of time and effort on searching and matching. For auto repairs, home repairs, household help, tutors and even child care, it can be difficult to find a convenient and reliable service. Wouldn’t it be a great improvement, indeed an amazing boon to people (and the economy as a whole), if a wide range of services, available on simple apps, emerged to decrease the costs of search?

Because of the happy combination of new technologies and private entrepreneurship, that possibility is getting more realistic every day. We shouldn’t allow pointless regulatory barriers, and self-interested private groups, to delay its time of arrival.

(Cass R. Sunstein, the Robert Walmsley University professor at Harvard Law School, is a Bloomberg View columnist. He is the former administrator of the White House Office of Information and Regulatory Affairs, the co-author of “Nudge” and author of “Simpler: The Future of Government.”)

To contact the writer of this article: Cass R. Sunstein at csunstei@law.harvard.edu.