Tag: demand

The Problem With “Uber” Strict Regulations

Texas Governor Greg Abbott signed a bill on May 29, 2017, establishing statewide regulations for ride-hailing companies that override strict local ordinances passed in Austin in December 2015.

Texas’s capital city of Austin faced adverse effects following the competition-stifling ordinance passed in a 9-2 vote in 2015. Thinly veiled as a concern for public safety, the pernicious law required all employees of ridesharing services to undergo fingerprint background checks in addition to the background checks already required by Uber and Lyft, the ridesharing services in question.

An article by the Texas Tribune, published December 17, 2015 (the day after the original local ordinance passed), blatantly stated that the law demonstrated an attempt by Austin officials to strike a balance that allowed ridesharing services to conduct their business “while addressing concerns about fairness and safety.”

One could hardly be surprised by the chaos and rising prices that ensued. After all, no successful public policy started with a government-induced level playing field.

One could point a finger at the regulations of the taxi industry as the origin of the whole plight. The taxi industry in the United States faces strict regulations that are disproportionate to the risk of the services offered. In the name of safety, the government has issued laws requiring extensive regulations, background checks, and vehicle maintenance checks. Perhaps the most obvious example of this occurs with the sale of taxi medallions. These medallions are required by law to be affixed to cabs in certain cities nationwide. In requiring medallions for legal operation and limiting the number of medallions available, these cities tightly control the number of taxis that operate at a given time, preventing the market force of demand from dictating taxi supply and, consequently, taxi fare.

As the product of innovation and adaptation, Uber made its debut in 2009 in San Francisco, California, and rapidly spread throughout the nation. Unhindered by burdensome regulations, Uber went from being the least-utilized ground transportation method to the most-used method in the year 2015 alone. Mutually beneficial to both drivers and riders, Uber capitalized on the “invisible hand” of the market, keeping its fare prices upward and downward flexible depending upon market demand and supply. To add insult to injury for cab companies, Uber’s user-friendly app interface epitomized convenience for riders. With low barriers to entry for potential drivers, Uber had created a textbook free enterprise.

Austin city officials undoubtedly did not face incentives to foster healthy competition, and onlookers observed their egregious yet all-too-predictable reaction. Rather than reevaluating existing taxi regulations to keep the market competitive, in a 9-2 vote, Austin’s local officials passed a law requiring ridesharing services to conduct fingerprint-based background checks in addition to their pre-existing background check policies. A small band of winner-and-loser-choosing “experts” had once again succeeded in passing a specious bill promising safety and fairness.

Maintaining their reputation of getting the last word, Uber ceased operations within Austin, refusing to comply with the new fingerprinting standard.

The void created in Austin by Uber’s departure soon prompted new ridesharing services willing to comply with the new local ordinance to materialize. One such example was “RideAustin.” However, without real competition, these services charged fares above the market price, leaving customers extremely unsatisfied. In addition, different safety concerns emerged. Law enforcement officers and locals feared a potential increase in drunk driving incidents and sexual assaults on the streets of Austin at night as affordable transportation decreased and vulnerability increased.

On May 29, 2017, Texas Governor Greg Abbott signed a bill into law that would establish statewide regulations for ridesharing companies, overruling Austin’s ordinance established in 2015. Governor Abbott’s new bill implemented reasonable safety requirements for ridesharing companies that allow the market to remain competitive, keeping prices low and consumers satisfied. His bill, House Bill 100, necessitates that ridesharing companies pay an annual $5,000 fee, require driver background checks at the local, state, and national levels without requiring fingerprint checks, and secure a permit from the Texas Department of Licensing.

Upon signing the bill, Uber has returned to the busy streets of Austin, satisfying consumer demand and restoring competition. The week after Uber’s reinstatement, “RideAustin,” the over-priced ridesharing company that emerged in the wake of Uber’s void, experienced a 62% decrease in demand and announced on Facebook that they would begin matching Uber and Lyft’s mile/minute fares.

Who knew increased regulation and decreased competition is actually harmful to consumers and producers? Governor Abbott. Many Austin locals are grateful he took steps to reverse those trends. Other cities would do well to learn from Austin’s blunder and pursue competitive “fares” rather than the illusion of being “fair” to avoid similar mistakes in the future.