Alberto Mingardi  

Uber banned in Milan too

Systematically Biased Beliefs ... Greece and Detroit...

Uber has been banned in different countries in Europe, including Germany, France, and Spain, where the company has evolved its business model in the direction of transporting goods.

As you may know, we Italians are often latecomers to new trends: so we banned Uber only yesterday, with a decision from a court in Milan. Interestingly enough, the court didn't ban Uber altogether (Uber black cars can continue to operate), but just Uber Pop, the car pooling service that in Europe covers the same market niche as Uber X in the US. Nor did they ban other car pooling services. So the court decision may bring by interesting opportunities to alternative ridesharing services like Letzgo or Blablacar, though the latter so far specializes in longer rides.

The Milan judge obviously didn't listen to this excellent EconTalk with Mike Munger, or read a recent article by Tim Sablik, published by the Richmond Fed, on the so-called "Sharing Economy". It is a very helpful review of the available literature on the subject.

Writes Sablik:

Evidence suggests that sharing economy firms have greatly increased supply in sectors like transportation and lodging. The Bureau of Labor Statistics reports that there were 233,000 taxi drivers and chauffeurs in the United States as of 2012, but new services are substantially adding to that number. According to a recent study by Uber's head of policy research Jonathan Hall and Princeton University economist Alan Krueger, the company had more than 160,000 active U.S. drivers in 2014. That alone nearly doubles the supply of short-term transportation, not counting Uber's competitors like Lyft and Sidecar. Similarly for the hotel industry, Airbnb boasts over a million properties in nearly 200 countries, surpassing the capacity of major hoteliers like Hilton Worldwide, which had 215,000 rooms in 74 countries in 2014.

Sablik emphasizes how the "sharing economy" is substantially lowering transaction costs, creating more opportunities for wanna-be entrepreneurs as well as customers. Uber is a very good example of this trend. People may have been theoretically happy to give rides for a fee even before the California start up begun its operation. But that couldn't happen for a variety of reasons, most notably people couldn't signal this availability in any other way than painting their car yellow and put a "Taxi" sign on it.

Sablik acknowledges that there are problems related with the establishment of "trust" in some of the areas the "sharing economy" companies operate in. We trust hotels to make sure the maids they employ will not steal the laptop we leave in our hotel room, but what about people renting a room on Airbnb? Taxi drivers have claimed a number of times they are more "trustworthy" than Uber drivers because they have to pass some test or more generally comply with local regulations--though it is not clear, to me, that municipalities (at least in Italy) are performing extensive background checks on taxi drivers. Sablik points out that "it is not clear that top-down regulations perform better than markets at establishing trust and policing bad behavior" and suggests that

Firms have their own incentives to establish trustworthiness and quality in order to maintain and expand their market share. This can lead to novel market solutions designed to solve Akerlof's 'lemons problem.' For example, in the 1990s, it was not obvious that online retailers like eBay and Amazon would succeed. After all, they faced the challenge of courting customers who couldn't inspect their products before they bought them and had no guarantee of receiving a good in the mail after they ordered it. Those initial online firms developed rating and review systems to allow market participants to provide measures of quality.
Today, sharing economy businesses rely on the same underlying framework, and technological developments in the last decade have improved the reach and effectiveness of these systems. Widespread adoption of Internet-enabled smartphones gives consumers instant access to prices and reviews.

I find particularly perceptive his remark that the development of social networks may have helped greatly in building trust by "making the Internet less anonymous".

Sablik's review finishes with a word of caution: platforms may "become monopolies because they gain more value the more users they have". Of course, their value increases with the number of users they have: but that's good for users too. Think again about Uber: the more drivers they have, the more likely it is for customers to find one when they need one. Certainly anything can happen, under this sky, but as far as the incidence of "monopolization" is concerned, these platforms have so far decreased it, widening the range of available options, as Sablik himself recognized a few lines before. At this stage, overemphasizing possible future dangers related with "market power" that the Ubers of this world may or may not at some point exercise creates a useful fig leaf for bans of European-style, whose rationale is really to protect taxi drivers from competition, not competition from Uber.

Comments and Sharing

COMMENTS (4 to date)
David R. Henderson writes:

Excellent post, Alberto.

NZ writes:

How about backing up this collection of phrases

social networks may have helped greatly in building trust by "making the Internet less anonymous"
with some evidence. Also some causal proof: if the internet is less anonymous, how does that translate into more trust in general? Seems like it could just as easily go the other way.

Mark V Anderson writes:

Since it is the court that outlawed Uber, that makes me curious about the law this court is enforcing. Is it that taxis have licenses in Italy, so those without licenses can't be taxis?

Alberto, this and previous postings certainly make it sound as if this is a classic example of regulated industries being successful in lobbying against the public interest. But I all I know about Uber in Europe is what I read from you. I would sure appreciate it if you would add links to those with opposing views (outside the industry), so we could hear the other side.

Ricardo Cruz writes:
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