Uber Is A Gift From God

By Graham Peterson

There is a dust up right now about whether or not Uber, the cab company that isn’t actually a cab company (it’s more like craigslist), should be investigated for anti-trust.  People are afraid that because the company has been so successful, it will eventually become a monopolist.  “What happens when the local taxi companies are destroyed and Lyft is crushed? . . . . What happens to labor — the Uber drivers — when they have no alternative but Uber?” says Andrew Leonard at Salon.

You’ve heard that argument before: “what happens when you only have one choice?” but was from critics of communism,, not anti-capitalists.

If you have Netflix (who also introduced a new technology, like Uber, and “unfairly competed away” the business from your local video store) fire up a copy of the old documentary The Corporation.  If you don’t have Netflix, used copies start at $5.00 (versus $19.00 new) on Amazon’s peer-to-peer marketplace, another service just like Uber.

There is a scene about a small town that effectively banned McDonald’s from setting up shop.  In the town hall meeting, there is a clip of someone’s Craggy Old Conservative Uncle indignantly warning everyone about what life will be like when there’s only one business to get your products from — the state.  I am nobody’s uncle, and I’m not a conservative, but I’m here to make the same argument.

Restricting Uber and other peer-to-peer services like Airbnb will not eventually lead to communist dystopia.  We’ve been there for decades.  Cabs and hotels are two extremely regulated industries for which competition has always been restricted.  That’s why prices are high, why cabs are mostly shitty revamped police cars, and why service is so poor that your cabbie will likely yell at you for not paying in cash.  Cities hand out a limited number of medallions (cabby licenses that get stamped on the cars), and a handful of oligopolists are able to purchase the majority of them.  Cab companies fix prices, and there is no competition among drivers.

Cab medallions are such a classic case of government monopoly that they’ve been a feature of introductory economics textbooks for decades.  So it just blows my mind that the frenzy over Uber has resulted in the injunction that Uber is the unfair monopolist.

Cab drivers rejoiced when Uber hit the scene because it gave them autonomy they had never had.  I talked to drivers who were glad to not have to argue with dispatch over when and where to pick up fares, drivers who were making a bigger cut on Uber rides.  That’s what’s happening to labor.  The drivers are now upset that UberX (where Joe Blow picks you up in his sedan) is competing away business from them.  But that’s life.  That’s competition.

Here’s the rub.  Whenever there’s new competition in marketplaces, the same arguments come out.  Customers aren’t going to be protected.  The new businesses will monopolize the market and destroy legacy businesses.  You heard the same about Aribnb, and if you go further back, about internet commerce period.

The intuition is that people (cabbies) are essentially knavish, and if not working for large firms, who are again regulated and reigned by large governments, people (cabbies) will screw each other and customers.  But the argument is also, often, that large firms and governments screw the people they’re supposed to represent and protect.  Herein lays the insanity in believing that both governments and markets are awful for people — in order to fight one evil, one must invoke another.

When new technologies appear, competition improves, wages go up, prices go down, and services improve.  You will hear legacy businesses like Hilton Hotels and local cab companies start to invoke anti-communist rhetoric about monopoly and unfair competition.  To wit, you hear monopolists — big business and big government — raise a finger against monopoly.  But the argument is not being made to protect your interests.  It is being made to protect the interests of the state agencies and legacy businesses who benefit from restricted competition.  It keeps cash rolling towards them, and prices high for you.  And it hurts regular folks who want to enter markets to try to improve their lot.

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2 thoughts on “Uber Is A Gift From God”

  1. There are ordinances in Madison, WI, requiring all cab companies to service all areas of town including lower-income neighborhoods. I’ve heard they’re also required in some way to equip their fleet, maybe train their drivers, etc., to accommodate patrons with limited mobility.

    Ride sharing services like Uber and Lyft are able to compete for fares during peak periods (weekend bar time, etc.), which are essentially the bread-and-butter of the established companies that may operate at a relative loss most other times, including when they’re servicing the relatively disadvantaged populations. I’ve heard this complaint from cab drivers and dispatchers here and don’t know what appropriate solutions would look like. I’d love to see new competition force cab companies to improve service and modernize their dispatch using some of this newer tech without hurting people who rely on the service mandated by existing ordinances.

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  2. Madison may be unique. Most traditional companies will not pick up (and many drivers will refuse to drop off) in bad neighborhoods in Chicago.

    Anti-Uber cab lobbies made the argument that you need a debit or credit card and many of the ultra poor are unbanked. Most of these people either do not/will not take cabs anyway, have access to top-up debit cards from currency exchanges, and will benefit from increased competition and decreased fares that put cabs in their reach.

    Generally the way to serve poor people isn’t to mandate that someone serve poor people, it’s to create technologies that make serving poor people a profitable thing to do.

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