Political vs. Market Regulation: Uber Edition

Earlier this week The Washington Post’s Catherine Rampell suggested that new entrants in the transportation market, like Uber, should face greater government regulation—despite having fueled much of their initial success by their ability to offer services free of existing taxi regulations. She’s right that commercial enterprises do need a form of regulation that offers corrective discipline, but she’s incorrect that that discipline need be provided by the government.

Market competition itself provides the best corrective to consumer harm and dissatisfaction—if it is allowed to work. Firms in competition with each other must also simultaneously seek the cooperation of their customers, workers, and investors. Maintaining those relationships encourages firms to monitor their performance with these constituencies and compare themselves with their current and new entrant competitors. But that pressure to improve will only arise when there’s a credible threat of someone else coming along and luring one’s customers away. The more existing rules burden and restrict new entrants, the less effective that threat will be.

The rationale for political regulation is often based on outmoded ideas, including that the information needed for markets to function is not available to enough consumers. New technology, in particular in the case of urban ridesharing, has undermined many of these arguments, and the future innovations birthed by competitive pressures will eliminate even more. To the extent that taxi and rideshare drivers and being treated unequally, the answer is to liberate the cabbies, not to shackle Uber.