The Ride-Apps Dilemma in the United States

The Ride-Apps Dilemma in the United States  

by Tomas Bernardes

1. Introduction 

The impact of the new technologies has produced a massive change in the way of doing business in the world and one of the sectors that has been most affected by this change is passenger transport. The rise of mobile applications has grown lately giving solutions and adapting to the daily life of people, especially in terms of mobilization and transport. The low innovation of traditional transport companies such as taxis, has made them less competitive due to the technological change that companies such as Uber or Lyft have introduced in the personal transport sector. Throughout this term paper, I will focus, especially, on Uber, since it is the most known and used mobile passenger transport application in the world.  

During these last 10 years, Uber generated a revolution by entering large cities and forcing politicians to respond. In 2010, Travis Kalanick, the CEO of Uber, launched in San Francisco, a revolution for the passenger transport market. Since then, Uber's growth worldwide has been exponential, the company expanded to take its lower cost service than a taxi, to more than 300 cities on six continents, making more than four million trips every day. (Business of Apps 2019)1. 

If we refer to the factors that allow its growth in the market, we must emphasize the use of technology; in these time, all people have a smartphone and know how to use it, from there you can see where the cars are located operating as Uber, you can choose if you want a conventional car or a larger one and also allows people to see, in real time, the route that the car has taken to reach the user. 

Another factor that is also relevant is the efficiency and transparency of rates, prices are fixed, not arbitrary to the driver or other factors. The distance of the route is measured not by a taximeter, but by the GPS of the phones, and the route is recorded in the application. 

However, the revolution that Uber has generated, not only brought great benefits for users, but also brought a big problem for taxis, and to some extent, for the government. In every big city, an accusation floats in the air aimed at Uber: being an unfair competitor. 

2. Outline 

 Throughout this term paper, I will analyze from a neutral point of view, and provide information on the situation generated from the entry of Uber in the worldwide transport market of passengers, especially analyzing how Uber innovated the market and, also focusing on the demand of taxi companies that, according to them, Uber is an unequal competitor. The main reasons why taxi companies of, especially, big cities accuse Uber are: not competing fairly, not paying taxes, not having the necessary licenses and causing security problems. The competition is good for the consumer, because it forces to offer better service and varied prices, but, from the point of view of the taxi companies, they demand the same rules of the game for everyone. In addition, I will focus on how the intervention and response of each state of the United States to this situation is.  

3. Uber's Innovation and Advantages over the laws 

Uber has successfully inserted and innovated the passenger transport market, displacing taxi companies, due to its way of operating, known as a collaborative economy. The collaborative economy, which is based on lending, renting, buying or selling products based on specific needs, extends through the veins of our society as a drug. (Morgan 2015)2. Due to economic benefits, comfort and thanks to the technological development and social networks, users make use of technology to carry out each one of their actions. Uber took advantage of this and digitized a service that favors both drivers and travelers, in other words, this application is established through a connection of favors, which takes advantage of travel and makes life easier. 

The idea of Uber is simple: to be an Uber, a person only needs their own car, license and the corresponding insurance to register as an Uber driver, and to enjoy the application, a person just has to have a smartphone, download the app and become a passenger paying through it. This simple idea that Uber has produced, generating a huge impact on transport innovation, has made taxi services seem like an old and worn out business model. Furthermore, since its launch, Uber is characterized by its constant innovation. One of the most innovative features of Uber is the implementation of shared trips. The option of sharing a trip with more people that Uber offers, allows people to make more economical trips, reducing the user rate approximately by half. Another innovation that Uber has introduced in the market is the option to choose the size of the vehicle for the user to transport. 

On the other hand, Uber has taken advantage of laws that had not been updated to deal with technological advancements. These advantages have allowed Uber to overcome one of its main competitors in the market, taxi companies. Taxi companies and their drivers generally must go through various regulations, expensive licenses and high expenses to provide their service. On the contrary, Uber has managed not to go through these difficult situations, arguing that the service it provides, is only a technological platform that connects drivers with users, and not a transportation company that hire drivers and own cars. (Rosemblatt 2019)3. Uber authorities claim that Uber drivers are independent contractors, not employees of the company. This difference in job classification makes Uber save millions of dollars in the job-expenses of its drivers. This situation of Uber, surpassing the laws, has not left the taxi companies happy, who have expressed their discomfort in almost every country where Uber settled to provide its services. 

4. Taxis: The Old Way of Doing Business, and its Regulations 

Since the 1920s, the taxi system has grown year after year in the United States to become the most known and used passenger transport system, especially in large cities. The iconic yellow color of taxis in New York created an unmistakable brand for the taxi system, which was replicated throughout the world. (Satanovsky 2012)4. However, throughout history, the taxi business was never simple. After the Great Depression, taxi regulations started to increase, due to the policies imposed by the government of being more protectionist and regulatory. Nowadays, taxi companies and their drivers must go through different government processes and regulations that hamper the system. With the arrival of applications such as Uber or Lyft, these regulations clearly show how they complicate taxis, generating a clear inferiority compared to ride-applications.  

In major cities, such as New York, Los Angeles and Chicago, where the largest number of taxis in the United States is concentrated, taxi companies are strictly regulated. The state governments of these cities control every aspect of the services that taxis offer. A common regulation that taxi companies have are ¨taxi medallions¨. Some of the cities mentioned above, use ¨taxi medallions¨ as permits for drivers to operate. However, these permits are extremely expensive and limited because the state government establishes the maximum number of taxis that can operate in the city. (Snead 2015)5. For taxi companies and its drivers, this is a clear barrier to entry in the market, because drivers have the difficult task of getting the medallions. On the contrary, Uber drivers have unlimited vacancies to provide their services, since the government does not regulate it like taxis.  

Other barriers that taxi drivers must go through in order to operate are the payment of large fees, the use of specific equipment (cars with certain conditions), and regulatory procedures. The regulations that state governments establish for taxis create a huge inequality in the transport market. The limited vacancies to operate the taxis generate a restriction of the offer, which translates into higher prices, where there Uber takes advantage of this. 

5. Claims from Taxi Companies Against Uber 

In several cities around the world where Uber is established, taxi companies have expressed their dissatisfaction through street protests. Uber's activity has generated numerous lawsuits, public manifestations, demanding the government to regulate or withdraw Uber, and even acts of violence towards the drivers of the vehicles. In large cities in the United States such as New York City or Chicago, claims against Uber have also been present in the streets. In short, the main claim of taxis is that Uber is an unfair competitor in the passenger transport market.  

Taxi companies argue that Uber has an unfair advantage because it does not go through numerous regulations such as taxis. As an example, in some cities, Uber drivers do not need to present a background check, and their cars are not inspected by the police department. Other regulations that Uber does not require are the official licenses of its drivers. In contrast, taxi drivers to operate must have expensive and limited taxi medallions, controlled by the government. The complaints of taxi drivers about medallions are because there are a limited number of these licenses, therefore, their prices have greatly escalated. 

On the tax side, taxi drivers argue that, although Uber uses a different model of passenger transport (technological service), this does not mean that it is exempt from paying taxes, since they belong to the same industry. Taxi companies affirm and claim that the government must regulate and charge Uber, since its main advantage over them, are the low prices, which are due to the lack of regulations. (Farren 2019)6. 

6. State Governments Response 

Due to this conflict generated in the United States and around the world, the governments of each State of the country have looked for ways to solve this situation. During the last five years, there were different judicial battles in each State. Currently, Uber has all the guarantees to operate freely in the passenger transport market. However, the judicial battles of each state resulted in new regulations for the company. Some states have put severe regulations and other states lighter regulations on Uber, which according to reports, has spent millions of dollars on lobbying efforts, to convince state legislatures and many local governments to pass legislation protecting their interests from regulations. (The Regulatory Review 2019)7. 

Most of the States in the country, starting with Texas, Florida, Colorado, and Kentucky, have passed laws that allows ride-apps to operate in the market. Basically, these new laws are requiring Uber: background checks on all its drivers (in some cases, including fingerprint checks and physical exams), insurance coverage, and in some states, the governments take 1% fee on each fare. (Thornton 2018) 8. In some states like California, New York, and Illinois, Uber initially was sued and had to pay several million for violating number of laws such as consumer protection, and laws that are designed to protect the public safety. 

Despite these regulations to Uber, taxi companies feel that the efforts of governments have not been enough, and taxis are still competing against an unequal adversary in the market. On the Uber side, lobbying efforts have been successful, and the requirements ordered to operate in the market do not affect the company. 

7. Policy Recommendation for the Ride-Apps Dilemma: Deregulate Taxis 

With this policy recommendation, there would be an essential and necessary regulation of ride-apps (backgrounds check on its drives, insurance, car examination). However, the major goal of this policy is to make a deregulation of taxi companies, mainly relieving traditional drivers of procedures, requirements and taxes. A company with fewer regulations means more competition, better service, cheaper rates and more jobs. If government is looking for an even competition in the transport industry, it must be through deregulation, and not through overregulation. 

An example of a great deregulation for taxi companies would be to be able to offer fixed rates in advance for a certain route. An Uber´s user knows before getting into the car how much it will cost the ride, while the taxi user does not know, except for exceptions, such as fixed fares for traveling, for example, to the airport. Moreover, it would be a great step if the government gets rid of unnecessary regulations imposed on taxis, which have no relation to public safety, such as some driver courses, or medallion requirements. 

With a great deregulation of the taxi service, the competition in the passenger transport market would be in fair conditions, and the success of one or the other would be in the hands of the users, who have the possibility to choose in which way they would like to travel. Taxi companies, with fewer regulations and expenses, will have the obligation to innovate more and more to compete at the same level with the new technologies in transport market. 

8. Conclusion 

With the rapid advance of technology, several dilemmas such as the one presented in this paper may arise in the future: The new and innovative vs. the traditional and old. The ride-apps dilemma, which faces mobile passenger transport applications with traditional taxi systems, which demand more regulations for technology, has gone through tense moments in the United States and around the world. After the introduction of new laws legalizing and lightly regulating the technological system, company protests have diminished. However, these regulations did not leave them completely satisfied, and possibly, if nothing changes, the dispute and protest could be revived. To end this dilemma, I suggested a great deregulation of the taxi system, so that they compete in the same conditions as mobile transport applications. Deregulate taxis, making a great reduction in operating expenses and bureaucratic procedures, which facilitate them to operate in the market. With these deregulations, taxi companies would be in equal conditions, and consumers would be responsible for choosing the best option in the transport market. 

References

1 “Uber Revenue and Usage Statistics (2019).” Business of Apps, 10 May 2019, https://www.businessofapps.com/data/uber-statistics/. 

2 Morgan, Jacob. “Why the Collaborative Economy Is Changing Everything.” Forbes, Forbes Magazine, 18 June 2015, https://www.forbes.com/sites/jacobmorgan/2014/10/16/why-the-collaborative-economy-is-changing-everything/#401a639b28a1. 

3 Rosenblatt, Joel. “Why Uber Is Arguing Drivers Aren't Part of 'Core Business'.” Time, Time, 12 Sept. 2019, https://time.com/5675637/uber-business-future/. 

4 Satanovsky, Gary. First Taxis in U.S., 8 Sept. 2012, http://www.famousdaily.com/history/taxis-first-began-running-nyc.html. 

5 Snead, Jason. “Taxicab Medallion Systems: Time for a Change.” The Heritage Foundation, 10 Dec. 2015, https://www.heritage.org/transportation/report/taxicab-medallion-systems-time-change. 

6 Farren, Michael D, Koopman, Christopher, Mitchell, Matthew D. “Ridesharing vs. Taxis: Rethinking Regulations to Allow for Innovation.” Mercatus Center, 15 Sept. 2019, https://www.mercatus.org/publications/corporate-welfare/ridesharing-vs-taxis-rethinking-regulations-allow-innovation. 

7 The Regulatory Review. “Uber and Lyft Lobby Their Way to Deregulation and Preemption.” The Regulatory Review, 9 Apr. 2019, https://www.theregreview.org/2018/06/28/schriever-uber-lyft-lobby-deregulation-preemption/. 

8 Thornton, William. “Uber Going Statewide in Alabama Sunday.” Al, 27 June 2018, https://www.al.com/business/2018/06/uber_going_statewide_in_alabam.html.