Tag Archives: Uber Amendments

Step one in obtaining government privilege is to have a seat at the table

The weekend edition of the WSJ featured an interview with Uber founder Travis Kalanick by Andy Kessler. It offers a nice lesson in how regulatory bodies can get captured by incumbent firms. In city after city Kalanick and his team encountered regulations and regulators intent on privileging the established taxi and luxury limousine industries.

The interview touches a bit on the Uber experience with the DC Council, (which I first wrote about back in July):

…the city tried to change the law—with what were actually called Uber Amendments—to set a floor on the company’s rates at five times those charged by taxis. “The rationale, in the frickin’ amendment, you can look it up, said ‘We need to keep the town-car business from competing with the taxi industry,’ ” Mr. Kalanick says. “It’s anticompetitive behavior. If a CEO did that kind of stuff—you’d be in jail.”

In the end, the city backed away from its proposal, allowing Uber to operate without the requirement that it charge 5 times what its competitors were charging. So far so good. Unfortunately, however, the legislation that gave Uber access to the DC market also mandated that any firm wishing to serve that market be licensed. As I wrote in The Washington Examiner in December, this adds one more chapter to the story:

As tech reporter Ryan Lawler points out, the licensing requirement erects a barrier to entry for other businesses. SideCar, for example, is a West Coast service that, according to its website, “instantly connects people with extra space in their cars with those who need to get from one place to another.” It is, they say, “like a quick and hassle-free carpool.” Since these instant carpoolers are obviously not licensed, they’d be illegal in DC. That’s handy for Uber. The company managed to cross the regulatory velvet rope and, alongside taxis, obtain access to a lucrative market. But once inside, Uber put the rope back up.

The incident raises questions about how much responsibility firms bear for the privileges they enjoy. I honestly don’t believe Mr. Kalanick set out to obtain a privilege for his firm. The problem is that once he had safely passed through the maze of red tape, he hardly had an incentive to ensure that anyone following him got through. And, of course, he even stood to gain if no one did. The simple fact is that when the deal was hashed out, Mr. Kalanick was at the table while the folks at SideCar (and hundreds, if not thousands of other would-be startups) were not. This is how regulatory capture works.

D.C. Council Considers Privileges for Taxis

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.