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D.C. Council Considers Privileges for Taxis

by Matt Mitchell on July 10, 2012

in Crony Capitalism

I had an economics professor who once joked that it is a good thing that New York City imposes rent controls. Why? Because it helps economics teachers everywhere explain the folly of price controls.

I suppose that I should thank the D.C. City Council because today they are evidently considering a measure that illustrates an important economic concept: regulations often benefit entrenched interests at the expense of customers and would-be competitors.

In my latest paper I write:

Though business leaders and politicians often speak of regulations as “burdensome” or “crushing”…sometimes it can be a privilege to be regulated, especially if it hobbles one’s competition.

An amendment before the D.C. council today illustrates this point beautifully. First, some background: “Uber” is a San Francisco-based Internet startup. They offer a cell-phone app that allows you to instantly call a luxury sedan to your location (full disclosure: I have never used this service and only recently became aware of its existence). It is, as one might imagine, more expensive than a typical cab service, but apparently a lot of people are willing to pay more for the easy and convenience.

Now, some on the D.C. council would like people to pay a lot more. An amendment—you can’t make this up—called the “Uber Amendments” actually singles out the company by name and sets a price floor with the explicit aim of limiting competition with traditional cabs. According to the Uber blog, section C) 1) of the amendment reads:

The minimum fare for sedan-class vehicles shall be five times the drop rate for taxicabs, as established by 31 DCMR § 801.3 (a).

In case their intentions were not clear, the “rationale” section of the amendment states:

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.

If you can’t win customers on price and quality, you can always go to government and enlist its help in boxing out the competition.

Update: I’ve just learned that language has been introduced to strike the minimum fare part of the amendment. Apparently it isn’t a winning strategy to be so overt when passing out government privileges.

 

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