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Uber Transportation Innovation

In the regulative battle between ride-sharing and taxi services, consumer choice is at stake. Source: Richard Perry/New York Times
In the regulative battle between ride-sharing and taxi services, consumer choice is at stake. Source: Richard Perry/New York Times


On an ordinary day, Lyft and Uber are fierce competitors, often resorting to questionable tactics and always eager to steal each other’s drivers; however, in Sacramento, they have become unlikely bedfellows. In light of recent efforts to regulate the steadily growing industry, ride-sharing companies have pooled resources to fight what they have touted as an egregious violation of free market principles and a blatant attempt by the taxi industry to lobby the government into minimizing their market advantage. On the other hand, there are those in Sacramento who claim that consumer safety lies at the heart of the issue and that attempts at passing regulative bills are aimed at leveling the competitive playing field. Although both positions have merit, they cannot peacefully co-exist without further measures. The state government must address this conflict to preserve competition, provide choice and safety for the consumer, and protect the job market for all drivers.

Since California cannot maintain the status quo, the state ought to push forward sensible policies that ultimately place the needs of the consumer over the wants of the highest bidder and the loudest voice.

Despite their similarities with taxi services, ride-sharing companies have radically transformed the market and pose a direct threat to the taxi industry. The concept behind ride-sharing companies is fairly simple: companies connect passengers with vehicles for hire through smart-phone apps, through which passengers can request rides and track the reserved vehicle’s location. These applications also allow both passengers and drivers to rate each other, which provides an advantage over traditional taxi services. Masabumi Furuhata and Maged Dessouky, researchers at the University of Southern California, claim that the benefits of using ride-sharing include “saving travel cost, reducing travel time, mitigating travel congestions, conserving fuel, and reducing air pollution.”

Although they are an admittedly recent phenomenon, these companies have expanded at impressive speeds in the last few years. Uber, which only officially emerged in 2010, was recently valued at $18.2 billion, exhibiting a massive jump in a mere four years. Other companies such as Lyft, Sidecar, and Haxi have quickly followed suit with their own significant growth.

Currently, the ride-sharing industry faces an upward battle against legislation that is designed to reduce its business under the guise of consumer safety. In response, many ride-sharing supporters have countered these claims. “I cannot tell you how many countless nights myself and my friends have gotten home safely because of companies like Uber and Lyft,” says Robert Harbison, an Uber user in the Sacramento area, “And California, as a state, cannot put a price tag on that.”

Throughout the state, Californians have echoed such appreciation for the choice offered by taxis’ main competitors. According to a report by the San Francisco Municipal Transportation Agency, the number of trips taken by taxis in the city plummeted by 65% in just fifteen months. The trend suggests that more and more passengers are abandoning taxis in favor of ridesharing services, and they do this despite its largely deregulated status. Because ride-sharing companies are only growing in popularity, it would seem that safety concerns are not a sufficient deterrent from choosing ride-sharing. A study in August 2014, which was conducted by the University of California Transportation Center, reinforced these results when it found that “ride-sourcing wait times are dramatically shorter than typical taxi dispatch and hail times.” In short, customers seem to be overwhelmingly siding with ride-sharing companies.

Despite such benefits, the taxi industry claims to have a legitimate bone to pick with its competitors. In recent months, powerful special interest groups have used regulatory action to punish competitors at the expense of customer satisfaction. While it has often been said that the regulatory action is meant to protect the consumer, it would seem that the taxi industry is concerned with the loss of its business. “We want to see these illegal cabs go away,” says Barry Korengold, President of the San Francisco Cab Drivers Association, “We want them to be ticketed, cited, arrested, if necessary. They should not be allowed as long as you have a regulated taxi force.”

Although this response certainly seems hostile, it raises the point of Uber and Lyft’s seemingly unfair competitive advantage in the absence of regulations. Without a significant change to the status quo, the taxi industry is in danger of dying out. “We spend a lot of money to comply with regulation,” explains William Rouse, President of the Taxicab, Limousine & Paratransit Association, “We jump through a lot of hoops. So yes, if a company doesn’t have to spend any money complying with regulation, then, of course, it gives them an unfair competitive advantage.”

As Rouse suggests, ride-sharing services have traditionally been allowed to skirt by existing regulations while taxis have been left behind in the dust. Because of this and other difficulties inherent in the status quo, recent measures have attempted to eliminate unfair market advantages and California has largely led the nation when it comes to sensible policy regarding the ride-sharing industry; however, not all of the proposed measures are intended to serve customers’ best interests.

AB 612, which would have toughened requirements for driver background checks and required better drug and alcohol testing, did not make it past committee because it neglected to take into account the self-regulating steps that companies have already taken to ensure that their businesses remain safe for consumers. Because most ride-sharing companies already require background checks for their drivers, AB 612 would have created unnecessary red tape.

AB 2293, a bill that passed on September 17 of this year, requires ride-sharing companies to provide insurance amounting to $50,000 per person and $100,000 per incident for personal injury and $30,000 for property damage once the driver has turned the app on, with an additional $200,000 in excess liability coverage for that initial time. After months of negotiation, this bill passed with support from both sides of the issue with the assurance that it satisfies practical concerns by addressing liability issues. This bill is more than mere political acquiescence because it serves both the drivers and their passengers.

Despite the necessary political and practical considerations, innovation, such as that of the ride-sharing industry, has always been a fixture in the American tradition. When Henry Ford released the Model T in the early 1900s, hundreds of makers of horse-drawn carriages lost their jobs in a process that has since become known as “creative destruction.” It is both unfair and unreasonable to expect consumers to compromise the quality they have come to expect from ride-sharing services in favor of a dying taxi industry. Instead, consumers ought to be given the option of when to use ride-sharing and when to use taxis. As such, any attempt at regulation ought to reflect the interests of customers and, if this means hardship for the taxi industry, so be it.

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