Alberto Mingardi  

Uber Wars Update

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The district court of Frankfurt lifted the nationwide ban on UberPOP in Germany. UberPOP is the most controversial and most promising service Uber offers: it doesn't just connect professional drivers of black cars (as Uber indeed does) in a bigger network thus making a wider amount of options available to consumers, but it allows non professional driver to give lifts to other, interested parties.

Uber reports:

A recent opinion paper by Professor Rupert Scholz confirms the legitimacy of Uber's business model in Germany. According to Scholz, Uber is not a transportation company within the meaning of the German Transportation Act but "an electronic drive-share platform".

It is an ingenious way of putting it, but I'm not sure it is enough to solve the problem. Uber is facing opposition from taxi drivers, who hold the legal monopoly for this particular service, providing lifts for a charge within certain geographical boundaries. Black cars also challenged this monopoly, but they got away with it, historically, because they were not collecting consumers "on the street" and limited themselves to providing services to a smaller number of customers - typically, those with deeper pockets. Services such as Uber are challenging the rules of the game in two ways. First, they allow black cars to compete directly with cabs. Second, they are allowing non professional drivers to compete with cab drivers and black car drivers at the same time.
These two groups, over the years, have deeply influenced the decision makers. Thus, personal transport services can't be organized in "firms" in many countries (you can enter the game just as a self-employed driver, or at most get together with others in a cooperative), and only these categories of people are allowed to accept money for driving others around.

This was not always capricious. In the world before Apps, how could one possibly know that somebody else, driving her car, was actually available to bring a passenger aboard and bring her somewhere? Technology allows us to better connect supply and demand of this particular kind of service, too.

Uber has two possible strategies: (a) fight against a monopoly and the regulations that protect it; (b) pretend it is actually different, and thus those very regulations do not apply to it. Now, in a way Uber is different: the kind of service it is providing does not completely mimic the one traditionally supplied by taxi drivers. If you get on an UberPOP (UberX, in the United States) car, you don't expect a London black cab: you know the driver typically finds his way thanks to a GPS device, you know the car may be messier than an "official" cab, you know the guy may want to submerge you with his thoughts on current affairs (wait a minute, that happens in taxis, too).

But the main point is that Uber drivers drive people around upon the payment of a certain sum of the money: which is the very thing that local governments decided only a handful of people should be allowed to do.

Local governments should thus accept that the reasons they had to limit the number of taxi drivers--presumably in good faith--were made obsolete by technological change and progress. In practice, they should accept there is no longer reason to interfere in the taxi sector. How is that likely to happen? The politicians in charge should at the same time make some of their voters very unhappy, and renounce their power on a specific business sector. Neither seems likely to happen.

So perhaps the Uber strategy of claiming they're different is really the only viable one. But I suspect that taxi drivers are too alert to anything that endangers their rents, and too vocal for it to work smoothly.

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CATEGORIES: Eurozone crisis

COMMENTS (2 to date)
Alex Godofsky writes:

Uber's strategy of pretending the regulations don't apply to them doesn't have to work forever. It only has to work long enough that consumers (especially the well-off and the politicians themselves) get used to using Uber. Once Uber is popular it is much harder to ban.

Tom Lindmark writes:

Generally, I have agreed with your comments on Uber, however, in this post you seem to advocate no oversight of taxi services. Should I read that to include no requirements for background checks, drug screenings, minimum insurance coverage etc? It seems that some level of consumer protection is warranted. Could you expand on your position in this regard.

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