You’ve probably heard recently about the feud between auto dealers and Tesla in New Jersey — as that story is, it’s just the latest and most glaring example of private interests using the government to protect themselves from competition at the expense of other companies and consumers.
How about the war on ridesharing? Traditional taxi companies have been targeting innovative up-and-coming alternatives, such as Uber and Lyft. These ride-sharing companies allow anyone who has access to a car to become a budding businessman: Drivers can provide travel services directly to customers using apps. Lyft is a pure rideshare service – any fees that drivers earn are officially “donations” that customers choose. Uber is a little different — it has a pricing scheme allows flexible market rates for taxis and livery cars, instead of committee-set fee schedules, to match drivers and riders in 31 cities. Customers can use their phones to summon taxis or limos, or save money with Uber’s rideshare service, UberX.
Besides the ease of access and range of options that Lyft and Uber provide thanks to their digital nature, these companies earn customer support by offering innovative alternatives to traditional anti-competitive taxi regulations. Taxi medallions, fare price-fixing, and other regulatory barriers to entry have all but drained the last competitive juices from the legacy taxi system. Without these hindrances, Uber and Lyft are able to offer their customers better services at more reasonable prices.
Taxi incumbents, rather than attempt to please their customers, would rather use the brute force of the state to keep them coming back. Taxi incumbents have done their best to fight off Uber and Lyft: Hundreds of state-protected taxi incumbents, for instance, took to the streets of LA last summer to intimidate these “bandit drivers” (their words).
I don’t envy the plight of the taxi incumbents. Adapting to change is hard, especially when your family’s livelihood is on the line. Decades of protection from competition has left many taxi companies complacent and largely unequipped to nimbly improve their businesses. But rather than rising to the challenge, these mini-monopolies are turning to the government to keep scary competition out.
Attempts in some states and cities have been more successful than others. Last summer, Los Angeles city officials somewhat humorously decided to “ban” Uber, Lyft, and Rideshare (a similar service); the companies just ignored the rule. San Francisco International Airport officials went one step farther and started arresting ride-share service customers and providers last summer. Other battles are ongoing: Minneapolis is currently trying to ban Lyft and UberX from operating in the city, despite flourishing customer bases in neighboring St. Paul. The taxi industry in Atlanta recently “declared war” on Uber and Lyft. Nashville makes shady moves to regulate the businesses. Seattle, in a relatively gracious move, will allow Uber and Lyft the honor of operating, but will impose a supply ceiling of 150 drivers on the companies. Sometimes, competition wins out: The D.C. taxi cartel tried to shut down Uber last year but thankfully so far they have failed.
All in all, incumbents’ responses to the healthy competition wrought by ridesharing services have been wholly disappointing — and very revealing.
Don’t chalk this up to road rage: Anti-competitive incumbents in the hotel industry are also resisting innovation. Similar to Uber and Lyft, AirBnB allows individuals to rent out their apartments and homes to interested parties (and vice versa). Let’s say you’ll be out of town for a week. With AirBnB, you can list your apartment on the website, name a price, and offer it for rent during your vacation. You can browse interested renters, select your lucky customer, give them the ground rules, and meet them before exchanging keys. In a few easy steps, you’ve got an apartment-sitter, and a short-term income stream! On the other side of the exchange, travelers on a budget can opt to rent a vacant apartment rather than shelling out for an expensive hotel with unnecessary amenities. I haven’t used the service yet but friends who have say it’s very cheap and easy to use. Apartment-owners and short-term renters alike are wild about it.
The hotel lobby is decidedly less pleased, and heavy-handed hoteliers are gearing up for a fight. With the help of sympathetic lawmakers, AirBnB was banned in Portland. As usual, New York City is a role model for how eager lawmakers are to side with special interests – the city charged a man with a $40,000 fine last year for renting out his apartment with AirBnB. The fine was later lowered by a judge, but it sent a strong signal about whose side the legislature was standing by. Some L.A. neighborhoods have raised heckles about AirBnB, building momentum to bring their case to municipal officials. Across the pond, cities like Paris and Berlin have readied their banhammers for short-term rental services like AirBnB. Smaller cities, like Grand Rapids, Mich., tempered their original impulse to simply ban AirBnB by imposing less restrictive, but still anti-competitive, price regulations on the company. Change is simply proving too big a pill to swallow for many city officials and hotel lobbies.
But there is much cause for hope. Most people are rightly outraged by the indefensible anti-competitive actions taken against innovative firms. By all accounts, people aware of the recent Tesla fight were shocked to hear that lawmakers could simply change the rules of the game to protect the profits of a special-interest group. When given the chance to defend these blatantly useless regulations in public, special-interest shills quickly lose support.
Lawmakers may believe that their alliances with special interests are good political moves, but they overlook jilted consumers at their own peril. When lawmakers insert themselves in between the suppliers of desired goods and services and the customers that demand them, these two groups will work together to make the lawmaker irrelevant. Indeed, services like Uber and AirBnB were originally created to bypass the inefficient regulations that lawmakers inked in the first place. Cronyism may have been a competitive political strategy for a very long time, but the status quo is being challenged, and the continued successes of Uber, Lyft, and AirBnB are just the beginning.