Research shows taxi regulations do much more harm than good.
| 6:00 a.m. July 9, 2015
The Sarasota City Commission agreed to send a first draft of new regulations for ride-sharing companies like Uber, Lyft and many others to public hearings. These so-called “transportation network companies” compete with traditional taxis but do not currently fall under the same regulations.
The rise of these new services — with typically lower prices, much better cars and service quality, and the convenience of summoning a ride with the push of a button — should be leading to a more competitive and better market for paid rides, not calls for new regulations. The draft regulations put together by city staff are very restrictive. Uber left Broward County and other cities in response to similar over-regulation, and you have to wonder how that makes citizens better off.
For those of you not familiar with Uber and similar services, here is how they work. Drivers with their own vehicles register to be drivers for one or more of the ride-sharing companies. They get checked out and are put into the system. When they log in on their smart phone that they are available to pick up passengers, the system looks to match them with a customer. Most drivers for these ride-sharing companies drive part-time, logging in to provide rides to make some money.
Customers get the appropriate app on their phones and register as users. When they want a ride they open the app, and it shows where vehicles are in their area. The photo included here is a screenshot of the app for a location in downtown Sarasota. You can see the black images of the cars nearby, and that a lot of them are up at the airport.
When a customer asks for a ride with the smart phone app, the system matches them with a nearby driver and shows the customer the driver’s name, picture and a picture of the car, and the rating other customers have given, as well as what the fare will be. The driver picks up the customer, drops him off, and payment is made automatically from the credit card registered at sign-up. No tipping, no time taken at the curb trying to pay.
Afterward, the driver and passenger are asked to rate each other, and a driver or passenger who gets more than a few bad ratings is banned from using the service.
I use these services a lot as I travel around the nation, especially Uber and Lyft. I find them to be almost without exception better quality, lower price, quicker, nicer cars and friendlier drivers than traditional taxis. I’ve taken Uber from Tampa International Airport to my home in Sarasota, and it was significantly less expensive, quicker and more pleasant than a taxi or a shuttle.
But new companies coming in and disrupting a highly regulated market like the taxi market naturally stir up controversy. This year the Legislature considered regulations for these ride-sharing services.
The Senate bill, which sought to treat drivers as fully commercial operators with heavy insurance requirements, passed. The House bill, which sought to regulate many aspects of operations and management of ride-sharing services as well as insurance requirements, and also would have forbidden cities from adding additional regulations, did not pass.
Both state and local moves to regulate ride-sharing services are not driven by widespread problems or market failures. Instead they look at hypothetical future problems and seek to prevent them, often with the lobbying support of taxi companies, which benefit financially by a constraints on competitors.
More important, we already have a market for similar services with taxis, which are heavily regulated, so too often the first response to the rise of these new ride-sharing services is to cram them into the existing regulatory system.
Instead, the response should be to give the market a chance to work. Remove most of the regulations on taxi companies and let them compete with the new ride-sharing services.
The main justification for regulating taxi markets has always been information problems — customers don’t know the quality of a taxi they hail down or call to come pick them up, and if they don’t like the service they have no good way to pass that information on to other potential customers.
But smart phones and ride-sharing companies have solved that problem. By allowing drivers and customers to share information on the quality of each other, it is hard for a bad driver or bad customer to get away with it. The market failure is solved.
I once wrote an academic journal article titled “Do Economists Reach a Conclusion on Taxi Deregulation?” in which I found that the vast majority of economic research on taxi regulations finds no justification for them — that free markets in taxis would work. And Dr. Sam Staley at Florida State University recently completed a study finding that consumers in cities with the most stringent taxi regulations are no better off than consumers in cities with the least taxi regulations.
Restricting taxi competition leads to higher prices for consumers. Which is why almost always the prices the new, unregulated, ride-sharing companies charge are lower than taxi fares — they are charging the actual market price. In fact, economic research typically finds that taxi market regulations have a number of pernicious effects on consumers, while benefiting taxi companies handsomely.
Typical taxi regulations limit the number of taxis and create substantial, if not total, barriers to new entry. The result is inevitably too few taxis, with long waits and lousy service for customers. When has less competition ever made consumers better off?
But the proliferation of these ride-sharing services actually increases jobs, especially in the flexible, part-time job market, as well as creates a wide field of ride options to serve the preferences of consumers.
Taxi regulations stifle innovation. You would think taxi companies would have invented a convenient new way to summon a ride with an app on your phone. But they did not come up with this innovation and in fact are the leading opponents.
Ride-sharing services make it easier for people who don’t own cars to travel throughout the community and enjoy all of Sarasota’s amenities. That is good for young people, visitors and many of the elderly.
These ride-sharing services are the future. Regulating against them in preference of an outdated paradigm will move Sarasota backward. Rather than try to fit ride-sharing into the existing “regulatory compact” between taxi companies and city government, the city should open up the market, deregulate the taxi companies and let consumers choose while drivers compete and innovate.
Dr. Adrian Moore is vice president of Reason Foundation and a resident of Sarasota.