Regulation Of The Day 224: Competing With Taxis

A cool startup company called Uber operates in about half a dozen cities in the U.S. and Canada, and is growing fast. Think of them as an on-demand cab service. Using their smartphone application, you request a car, and a few minutes later a professional driver in a black Lincoln Town Car will pick you up where you stand and take you where you need to go. Their system even sends you a text message to let you know when your driver is about to arrive.

Customers who don’t like Town Cars can request an SUV instead. Since Uber keeps your credit card information on file, payment is both cashless and automatic, and you do not tip your driver.

It’s an innovative business model, and customers rave about the service. No wonder the local taxi industry in Washington, D.C., sees Uber as a threat. There are two ways they can deal with it. One is to compete. The other is to use regulation to drive it out of business. Guess which option they chose?

Back in January, a shady sting operation led by Taxi Commissioner Ron Linton nearly put Uber out of business in D.C., even though it failed to find any rules violations.

Today, the D.C. Council was set to vote on an amendment from Councilmember Mary Cheh that would make it illegal for Uber to charge less than five times the initial $3 fixed-rate “flag drop” in D.C. taxis. This would put a stop to UberX, a cheaper service using less flashy cars. UberX is already available in New York, and the company is planning on bringing it to Washington.

The price for Uber X is a $5 base fee, plus $3.25 per mile, so any trip under three miles or so would be cheaper than what the rent-seeking amendment would require.

In other words, Cheh would rather her constituents pay more for transportation instead of less. Even in a city as cynical as Washington, this is difficult to spin as pro-consumer.

After a heartening consumer uproar, Councilmember Mary Cheh withdrew her amendment. Another Councilmember, Jack Evans, said he received more than 5,000 e-mails encouraging him to oppose the amendment.

It may return as a separate bill in the fall, but for now, Uber has won and the rent-seekers have lost.

There is reason to be optimistic that future rent-seeking attempts will also fail. Most companies become invertebrates when government comes calling, but Uber seems to have a spine. Leading up to the day of the amendment’s scheduled vote, CEO Travis Kalanick said,”We won’t stand for a DC Council price floor that limits innovation and hurts consumers. Uber DC’s minimum fare is now dropped to $12 for the remainder of July in protest.”

That’s the kind of attitude we like to see. D.C.’s taxi industry could learn a lot from Uber. Instead of purchasing corrupt politicians, they should offer a better service at a lower price. That way, everyone wins.