Regulator: True Ridesharing Illegal in California

In the past, I’ve noted that carve-outs for ridesharing providers leaves more innovative and disruptive business models—particularly future automated services—illegal. While self-driving on-demand transportation services are still a ways off, California’s Public Utilities Commission last week sent letters to Uber, Lyft, and Sidecar warning them that operating commercial carpooling services they have proposed is illegal. (See the letter to Uber here.)

This is not surprising. The narrow carve-out secured by Uber et al. in California, the “Transportation Network Company,” basically only authorizes taxi-like services that utilize digital hail networks across a distributed ownership model. True commercial ridesharing where co-passengers face individualized fares has long been illegal across the country.

Economists have identified shared-use services as a potential source of huge mobility benefits, yet such services are generally hated by incumbent taxi companies and transit agencies. The reason is that the cost advantages of true ridesharing and resulting lower prices have the potential to not only greatly undercut taxi providers, but to bring private shared mobility into direct price and service competition with mass transit. Indeed, this is the experience with private share taxi and jitney services across the world, where these services are immensely popular (outside of Western Europe and North America, where they are generally forbidden or greatly restricted).

This latest attack from the California PUC suggests free marketeers would be better off advocating for broad deregulation of the transportation services market, rather than working to secure limited “Transportation Network Company” regulatory carve-outs for the handful of start-ups currently dominating this market. It is always important to remember that being pro-business is not the same thing as being pro-market.