Art Carden  

Quality Control and a Level Playing Field in the Sharing Economy: Uber in Birmingham

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Beyond left and right... John Blundell, RIP...

There has been an explosion of commentary on regulations in Birmingham regarding Uber and its services; I streamed part of yesterday's City Council meeting at which they voted to delay a decision until next week. I wrote an open letter to the Council for Forbes.com and shared it in the r/Birmingham subreddit. A few people asked about the taxi drivers' side of the argument, namely, that they be allowed to compete on a level playing field. People have invoked "safety" as a reason why UberX in particular should face the same regulations as area taxicabs. I think these are interesting issues, but I don't think they make the case for regulation.

If people are really willing to pay a premium for the quality regulation ensures, then unregulated UberX shouldn't threaten regulated and presumably-higher-quality, lower-risk taxis. Riders who want the assurance that they are getting a quality ride will forsake Uber and go with the regulated taxis.

If people aren't willing to pay extra for high quality--if they are willing to accept a bit of additional risk for lower prices--or if Uber's ratings system isn't an effective way to maintain quality, then regulation is at best superfluous and at worst an unnecessary barrier to entry.

At The Skeptical Libertarian, Marc Scribner cautions people to be skeptical of Uber's political strategy, and with good reason. That said, regulators seeking to avoid the error of permitting something that is too dangerous are almost certainly going to make the mistake of forbidding something that is safe.


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COMMENTS (18 to date)
Effem writes:

That's funny. Do you honestly think people have any clue whether their uberx driver is insured? You can't expect free markets to work in the presence of massive information asymmetries.

Sam writes:

"..then unregulated UberX shouldn't threaten regulated "

You are missing a point. UberX operates without
any business permits while regulated taxicabs pay
local municipalities to run their small
businesses.

Who is UberX really benefitting except Uber
owners who instead of playing fair and purchasing
same exact business permits from local
municipalities - just cut through under the
guise of "advanced" iPhone app ?

If I am required to purchase a permit to run
my business, and you are not - yet, we both
operate in the same market, then something
isn't right about this "sharing" thing.

Kevin Erdmann writes:

Effem,

The free market response to this information asymmetry would be that demand for uber would decline because of the uncertainty associated with it. So, if there is a market breakdown, uber will fail of its own accord. Uber's success would be evidence that this problem isn't constraining.

Tom West writes:

I think effem is on the right track. It seems that people (by their voting patterns) fairly consistently do NOT want to have to be informed consumers in order to have safe goods and services (within limits)

The existence of a possibly unsafe good or service means that many feel they have to become informed, which may well be welfare reducing. (Note, even if the regulation doesn't increase safety, the *perception* of unsafe-ness may cause people to feel they have to become more informed, which may be a welfare-reducing expenditure of time and effort).

Of course, one can make the moral argument, but from the consequentialist perspective you seem to be taking, it's not the slam-dunk you make it out to be.

Eric W writes:

Two comments:
1) Regarding the "safety" of regulation, would you rather depend on an independent taxi driver with a part-time medallion lease and a local regulator with little accountability, or a global company with a $17B valuation and a brand to maintain? I certainly feel much safer getting into an UberX car where I know my trip is tracked and recorded, my driver is rated by users, and I don't have to carry any cash since all payments are made electronically. I would pay a premium for that

2) Why, whenever vested interests raise the point about unfair competition (which seems like a reasonable point), is their answer always to pile ridiculous burdens on Uber rather than letting up on the taxi system?

Jon Murphy writes:

Effem, they could simply go to the Uber website and see that yes, all Uber drivers are insured.

My question to you is this: why do you assume an ignorant buyer?

Your comment doesn't do anything to change Art's point. In fact, he addresses your concerns:

"If people are really willing to pay a premium for the quality regulation ensures, then unregulated UberX shouldn't threaten regulated and presumably-higher-quality, lower-risk taxis. Riders who want the assurance that they are getting a quality ride will forsake Uber and go with the regulated taxis."

Jon Murphy writes:
2) Why, whenever vested interests raise the point about unfair competition (which seems like a reasonable point), is their answer always to pile ridiculous burdens on Uber rather than letting up on the taxi system?

Great question. I think (and this is purely based on anecdote) that the argument is typically "well, we already paid in so they should to. Then we can talk reducing regs!"

Of course, the taxi companies lobbied long and hard for those regs in the first place, so...

Taeyoung writes:
"If people are really willing to pay a premium for the quality regulation ensures, then unregulated UberX shouldn't threaten regulated and presumably-higher-quality, lower-risk taxis. Riders who want the assurance that they are getting a quality ride will forsake Uber and go with the regulated taxis."

I don't know what taxicabs are like in Birmingham, but at least here in DC and Virginia, I genuinely do not understand how people think that the regulated cabs actually offer a "higher quality" or "lower risk" service than UberX.

In my experience, the UberX cars are without question higher quality and better maintained than all but maybe the top 10% of regulated cabs (this is probably because people like me ding a UberX car if it's dirty or rattles, whereas cab drivers have no reason to care).

From a safety perspective, they're not perfect (there was an incident earlier this year where an UberX driver started speeding to avoid a policeman), but it's not like they're any worse than regulated cabs -- a year or two ago there was a spate of incidents in DC where five or six cabdrivers (i.e. not just one bad apple) flat out attacked their (female) passengers. They were all eventually caught, but the mere fact that there is regulation certainly doesn't give a passenger much prospective assurance of safety. The cabdrivers in DC also tend to be pretty lax about following traffic laws too (Arlington VA cabbies are better).

Anyhow, in these discussions of Uber and Lyft, there's often this assumption that regulation is actually producing some kind of tangible improvement in safety and quality, and I think that's just completely at odds with the facts.

Laura S. writes:

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Tom West writes:

Jon Murphy: they could simply go to the Uber website and see that yes, all Uber drivers are insured.

My question to you is this: why do you assume an ignorant buyer?

Because we already see that ignorance. Do people know what the food regulations are? Do they know the taxi regulations?

People who are asking about choosing between regulated and unregulated are missing the point. To make a choice, you have to do enough work to know that Uber is unregulated.

For many/most citizens, the point of regulation is to allow one to assume that the government would not allow the sale of an unsafe good or service. As soon as you have to determine if a given good/service is unregulated, you're already being forced to do more work than the vast majority want to do.

Ben Kennedy writes:

I'm very sympathetic to the point Mike Munger brought up on the recent EconTalk - if someone "invests" in a medallion and the government lets the value fall to nothing, it raises basic fairness concerns. The government should at least offer to buy back medallions at their inflation-adjusted purchase price

Taeyoung writes:

Re: Tom West:

For many/most citizens, the point of regulation is to allow one to assume that the government would not allow the sale of an unsafe good or service.

Sure, but I assume most consumers have actually used regulated cabs before. Why would any of them think this particular set of regulations is actually excluding the sale of unsafe services?

I took a regulated cab yesterday, and the driver nearly caused three accidents (swerved suddenly and nearly hit another car while trying to pick me up when I hailed; nearly hit other cars twice while merging). And he was going about twice the speed limit (this was probably why he had trouble merging). This is not an atypical experience in DC.

It's all very well to make the abstract argument that consumers ought to be able to trust that government regulation secures them safer services, but at some point that idealistic fantasy has to collide with the messy reality that cabs in most US cities (possibly all US cities) are horrible.

ThomasH writes:

The level playing field can be accomplished by allowing taxis to comply with the same regulations applying to Uber-X.

Jon Murphy writes:
To make a choice, you have to do enough work to know that Uber is unregulated.

Why is that a problem? That should be easy. As I said, you can hop on the internet. Or taxis can advertise.

The book industry is unregulated. How do you know the book you're buying will be good? You could do research on the book. You can read reviews. You can look on the cover of the book and see "Oprah's Book List!" or something like that.

You're right; the point of regulation to to make people think they're getting a quality product. As it is, taxis already advertise this: they display their medallions. Cabs will read "regulated by the Massachusetts Transit Authority."

Nothing's going to change.

But again, if people truly value this regulation, then taxis have nothing to fear. If this regulation truly adds value, then you have nothing to worry about. But the capitalization of Uber says otherwise...

Tom West writes:

First, let me say that I do not necessarily approve or disapprove of what I see as a strong movement in society towards safety - it simply is.

they display their medallions

I would hazard a guess that most citizens have no idea nor interest that medallions exist. What they want is that if they order or get into anything that looks or feels "cab-like", they will be protected.

That is the full and complete extent to which they feel they should have to be informed in order to get minimal levels of service or safety.

It's just the same as you should be able to buy and consume anything "food-like" for sale without fear of food safety.

This regulation *is* welfare gaining for people who don't want to put in the effort to be informed. They feel safer. However, like anything else, it has strong negatives for those who are better informed and might take advantage of the different services that could be offered in absence of regulation.

As I said, the existence of Uber is not welfare enhancing for all consumers. Doesn't mean it's a good thing, but it's a weighing of pros and cons for different groups.

Mark V Anderson writes:

Tom, I think the main point is that cab companies can and probably will publicize their regulated status. So it won't take any effort for the consumer to know the difference.

I agree with you that most folks think the government protects them and in fact that is probably the single greatest factor that keeps libertarian candidates and their sympathizers far from elected office. But the fact that this belief is almost totally baseless is an important issue when discussing regulations.

Tom West writes:

But the fact that this belief is almost totally baseless is an important issue when discussing regulations.

I don't know about "almost totally baseless", having read about the state of certain industries *before* any government intervention. However, I'd agree that *much* regulation serves no useful consumer safety function.

However, even safety-neutral regulation does contain a fair amount of benefit, as the *perception* of safety (when in a relatively safe situation) does increase welfare substantially.

Again, not necessarily enough benefit to justify the costs, but at least something that needs to be weighed.

Those who don't understand humanity well enough to understand that that benefit is *real* may have a hard time getting elected.

ThomasH writes:

Tom West has a good point about regulation in general. The beauty of Uber is not that it will result in taxi utopia, but better regulation for both regular and Uber-type taxis. All regulations need to be constantly re-thought as the original rationale for them may have changed or been mistaken in the first place.

Specifically, I do not think the level of uncertainty about taxi quality justifies the amount of regulation that regular taxis face, so moving them toward Uber style non-regulation should work. (An Uber pharmaceutical provider would raise more serious safety issues issues)

As for business taxation, business should not be taxed (businesses are people) but if they are (taxis cannot be exempted) Uber drivers probably ought to be taxed at the same rates as taxis.

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