A Crumbling Monopoly: The Rise of Uber and the Taxi Industry’s Struggle to Survive
Erica Taschler
Student Fellow
Institute for Consumer Antitrust Studies
I.
Introduction
The taxi industry is in the midst of a crisis. Once protected by a regulated monopoly of
the commercial passenger motor vehicle transportation market (hereinafter “ground
transportation market”), the industry now faces increasing competition from a new type of
transportation service—ride-sharing.1 The emergence of companies like Uber, the most
successful ride-sharing company, threatens to eliminate the taxi industry’s stronghold on the
ground transportation market and possibly the industry itself.
Established in 2009, Uber describes itself as a “ride-sharing” company that operates by
sharing consumers’ information with drivers through a mobile app. Uber’s data sharing
description, disparaged by many as semantics, protects it from the stringent regulations that
govern the taxi industry.2 Consequently, in only six years, Uber has gained significant marketshare in both the United States and abroad. At this time, Uber operates in 58 countries and has
an estimated market value of over $41 billion.3
Uber, however, has not escaped scrutiny during its rise to the top. The taxi industry has
lobbied against Uber across the United States and abroad and some state legislatures and local
The Associated Press recently decided that it would no longer call Uber’s service “ride-sharing,” but rather “ridehailing.” Charlie Warzel, Let’s All Join The AP Stylebook In Killing the Term “Ride-sharing,” BUZZFEED NEWS
(Jan. 8, 2015), http://www.buzzfeed.com/charliewarzel/lets-all-join-the-ap-stylebook-in-killing-the-term-rideshar#.sp33edkdW6.
2
Uber’s original name was UberCab. Matthew Yglesias, When is a Taxi Not a Taxi?, SLATE, (Dec. 15, 2011),
http://www.slate.com/articles/technology/technocracy/2011/12/uber_car_service_exposing_the_idiocy_of_american
_city_taxi_regulations_.html; Nate Boroyan, Why Don’t Boston Taxi Drivers Just Switch to Uber or Lyft?,
BOSTINNO (Jan. 20, 2015), http://bostinno.streetwise.co/2015/01/20/boston-taxi-medallion-owners-lawsuit-rule-403uber-lyft/
3
Uber, https://www.uber.com/cities (last visited June 6, 2015); Douglas MacMillan, Sam Schechner & Lisa
Fleisher, Uber Snags $41 Billion Valuation, WSJ (Dec. 5, 2014), http://www.wsj.com/articles/ubers-new-fundingvalues-it-at-over-41-billion-1417715938
1
1
governments have enacted new regulations to govern Uber and other ride-sharing services. This
paper briefly explores the taxi industry’s reactions and the regulatory reactions to Uber and
argues that the emergence of ride-sharing services will eliminate the taxi industry’s regulated
monopoly of the ground transportation market. Nevertheless, this paper ultimately concludes
that the taxi industry may survive in a deregulated ground transportation market if it shifts its
focus from regulation to innovation.
II.
Taxi Industry’s Reactions
Taxi medallion owners and some taxi drivers across the United States have combated the
emergence of Uber by lobbying local and state governments and filing numerous lawsuits
against Uber. The taxi industry primarily argues that Uber engages in unfair competition
because it operates outside of the regulatory framework that burdens the taxis industry.4
The regulatory framework that governs the taxi industry varies per location, but many
cities and states share similar requirements. Most cities regulate the taxi industry with a
medallion system.5 Under this system, a taxi driver must either lease or own a medallion to
operate. Cities limit the supply of medallions to further regulate industry. For example, New
York only has 13,437 licensed medallion taxis in operation.6 Other regulations include standard
fare structures and criminal background checks.7
4
Simone Pathe, Uber the Unfair?Are ride-sharing firms exploiting deregulation?, PBS (Oct. 2, 2014),
http://www.pbs.org/newshour/making-sense/uber-unfair-ride-sharing-firms-exploiting-deregulation/
5
Josh Barro, Under Pressure from Uber, Taxi Medallion Prices Are Plummeting, N.Y. TIMES (Nov. 20, 2014),
http://www.nytimes.com/2014/11/28/upshot/under-pressure-from-uber-taxi-medallion-prices-areplummeting.html?_r=0&abt=0002&abg=1
6
Id.
7
Emily Badger, Taxi medallions have been the best investment in America for years. Now Uber may be changing
that., WASH. POST BLOG (June 20, 2014), http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/20/taximedallions-have-been-the-best-investment-in-america-for-years-now-uber-may-be-changing-that/
2
Prior to Uber, the taxi industry willingly subjected itself to these regulations because the
regulations reduced competition in the ground transportation market.8 But, the taxi industry now
feels burdened by these regulations because Uber has gained significant market-share by
ignoring the regulations. Uber, however, has countered the taxi industry complaints by arguing
that it is not subject to the same regulatory framework as taxis because it is an information
sharing technology, not a transportation service. It emphasizes that it does not own any vehicles,
but rather merely relies on its network of independent drivers to provide services to customers.9
Furthermore, Uber argues that the regulations governing taxis should not apply to its services
because regulators could not have envisioned Uber’s technology when they drafted the
regulations.10
Uber’s description of its services has triumphed over the taxi industry’s complaints
regarding unfair competition. Several cities have permitted Uber to begin or continue to operate
despite the taxi industry’s complaints. Even though many of the unfair competition lawsuits
against Uber are still in litigation, no court has definitively determined that Uber’s practices
constitute unfair competition. Consequently, the taxi industry’s attempts to remove Uber from
the ground transportation market have for the most part, failed.
III.
Regulatory Reactions
The FTC has indicated that it considers ride-sharing to be a pro-competitive innovation
that enables consumer choice in the ground transportation market. In June of 2013, the FTC
submitted a letter to the District of Columbia Taxicab Commission to express concerns about
8
Id.
Jacob Morgan, Why Uber Isn’t Really in the Transportation Business, FORBES (April 14, 2015),
http://www.forbes.com/sites/jacobmorgan/2015/04/14/why-uber-isnt-really-in-the-transportation-business/
10
Badger, supra note 7.
9
3
some of the Commission’s proposed regulations for ride-sharing services.11 In expressing its
concerns, the FTC noted that ride-sharing technology “may be more responsive to consumer
demand, may promote a more efficient allocation of resources (e.g., vehicles and drivers) to
consumers, may expand demand for passenger vehicle transportation services, and may reduce
consumers’ transaction costs in paying for such services.”12 It further cautioned that regulations,
such as specific vehicle requirements, could impede competition.13 At the same time, the FTC
supported both background checks and insurance requirements for any ride-sharing drivers.
Some state legislatures have taken a more aggressive approach toward the ride-sharing
market than the federal government, focusing primarily on insurance and criminal background
check requirements.14 The Kansas state legislature recently passed new legislation that requires
Uber and other ride-sharing companies to enhance their insurance and background check
policies. The legislation requires ride-sharing companies to perform background checks on their
drivers through the Kansas Bureau of Investigation.15
Uber has reacted differently to these enhanced regulations. In Kansas, Uber simply
stopped its operations.16 However, in Maryland, Uber praised Maryland’s recent legislation,
which also included certain insurance and background check requirements.17 Its varied reactions
to these similar regulations likely stems from the fact that Kansas’ regulations are more stringent.
11
Federal Trade Commission Staff Letter to District of Columbia Taxicab Commission (June 7, 2013),
https://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-staff-comments-district-columbiataxicab-commission-concerning-proposed-rulemakings-passenger/130612dctaxicab.pdf
12
Id.
13
Id.
14
Nevada has the most severe legislation against Uber. It banned ride-sharing services entirely. Eva Grantsimran
Khosla, Here’s everywhere Uber is banned around the world, BUSINESS INSIDER (Apr. 8, 2015),
http://www.businessinsider.com/heres-everywhere-uber-is-banned-around-the-world-2015-4
15
Uber shuts down in Kansas, (May 5, 2015), http://www.kwch.com/news/local-news/kansas-senate-overrides-vetoof-rules-for-firms-like-uber-uber-imediety-ceases-operation/32822146
16
Noah Rayman, Uber is Not in Kansas Anymore, TIME (May 5, 2015), http://time.com/3847912/uber-kansasceases-operations/
17
Luz Lazo, Hogan signs ‘Uber’ bill, WASH. POST BLOG (May 12, 2015),
http://www.washingtonpost.com/blogs/dr-gridlock/wp/2015/05/12/hogan-signs-uber-bill/
4
Kansas’ regulations require Uber to use the state background check system, whereas Maryland’s
regulations only require ride-sharing companies to have a background system that uses
fingerprinting.18 Furthermore, the Kansas legislation requires more extensive insurance coverage
than Maryland’s legislation.19 Uber’s willingness to eliminate operations entirely in a market
demonstrates its exponential growth and its disdain for any regulation that threatens to burden its
growth.
The taxi industry has also expressed mixed reactions to new regulatory frameworks for
Uber and other ride-sharing companies. Although the industry supports regulation for Uber and
other ride sharing services, many taxi companies argue that there should not be a two-tiered
regulatory framework for the ground transportation market.20 They argue that by failing to hold
Uber to the same regulations as taxis, state legislatures grant Uber and other ride-sharing
companies an unfair competitive advantage. As demonstrated by recent legislation, however, it
seems likely that a two-tiered approach will become the standard for regulating ride-sharing
services because it provides a compromise between the taxi industry’s unfair competition
concerns and consumers’ desire to use innovative services.
IV.
Uber’s Impact on the Commercial Passenger Transportation Market
Uber’s popularity has soared since its founding in 2009. Consumers have quickly shifted
to Uber due to the potential for lower fares, cleaner cars, and a higher-quality transportation
experience. In fact, by December 2014, Uber claimed that it was facilitating approximately one
18
Id.
Lauren Raab & Tracy Lien, Uber Halts Operations in Kansas, Objecting to Insurance Requirements, L.A. TIMES
(May 5, 2015), http://www.latimes.com/business/technology/la-fi-tn-uber-kansas-20150505-story.html
20
Boroyan, supra note 2.
19
5
million trips per day.21 Nevertheless, from the consumer’s perspective, Uber still has room for
improvement, especially with regard to its reputation, pricing, and customer privacy and safety.
Although consumers view Uber as an innovative service, many consumers and journalists
dislike Uber’s approach to gaining market-share. Some journalists have compared Uber’s CEO,
Travis Kalanick, to the robber barons of the early 20th Century. They assert that Kalanick and
his executives function as digital robber barons because Uber has gained significant market-share
through utilizing its size to generate below market fares, poor labor treatment, and
anticompetitive behavior, such as ordering and canceling rides from other ride-sharing services.22
Moreover, Uber’s reputation faltered significantly in 2014 due to statements made by its
executives and the public’s growing concerns regarding customer privacy and safety. Most
notably, in November 2014, an Uber executive stated that the company should set aside one
million dollars to find dirt on its critics.23 Also in the same month, an Uber executive used Uber
technology to track a Buzzfeed reporter without her permission.24 This conduct prompted
Senator Al Franken, the subcommittee chairman for the Senate’s Subcommittee on Privacy,
Technology, and Law, to write a letter to Uber’s CEO, which questioned the accuracy of Uber’s
stated privacy protections and requested more information about its data collection policies.25
Ellen Huet, Uber Says It’s Doing 1 Million Rides Per Day, 140 Million Last Year, FORBES (Dec. 17, 2014),
http://www.forbes.com/sites/ellenhuet/2014/12/17/uber-says-its-doing-1-million-rides-per-day-140-million-in-lastyear/
22
Andrew Leonard, Why John D. Rockefeller would love Uber, SALON (July 7, 2014),
http://www.salon.com/2014/07/07/why_john_d_rockefeller_would_love_uber/; Vivek Wadhwa, Uber’s Legacy
Hangs in the Balance: Digital robber baron or respectable innovator?, WASH. POST (Nov. 20, 2014),
http://www.washingtonpost.com/blogs/innovations/wp/2014/11/20/ubers-legacy-hangs-in-the-balance-digitalrobber-baron-or-respectable-innovator/
23
Uber-competitive, THE ECONOMIST (Nov. 22, 2014), http://www.economist.com/news/business/21633833-uberrisks-consumer-backlash-over-its-tough-tactics-uber-competitive
24
Johana Bhuiyan & Charlie Warzel, “God View”: Uber Investigates Its Top New York Executive for Privacy
Violations, BUZZFEED NEWS (Nov. 18, 2014), http://www.buzzfeed.com/johanabhuiyan/uber-is-investigating-itstop-new-york-executive-for-privacy#.pgllXnDnLg
25
Senator Al Franken Letter to Uber CEO, Travis Kalanick (Nov. 19, 2014),
http://www.franken.senate.gov/files/letter/141119UberLetter.pdf
21
6
Consumers and regulators also have expressed significant concerns regarding customer
safety. Because Uber is not subject to the same regulations as the taxi industry, it is not subject
to the same background check requirements in most states. Consequently, many fear that Uber’s
own safety checks are inadequate, and recent attacks by Uber drivers on customers have only
amplified these fears. Within the past year, several female passengers have alleged that their
Uber driver sexually assaulted them, and one man almost lost an eye after his Uber driver
attacked him with a hammer.26
Uber’s current weaknesses with customer privacy and safety policies give the taxi
industry the opportunity to adjust its own strategy to remain relevant in the ride-sharing
economy. The taxi industry can retain customers who want to use innovative services but who
also seek the protected benefits of the taxi industry: well-trained drivers and enhanced safety
regulations. Accordingly, if the taxi industry changes its strategy from lobbying and lawsuits to
innovation, it will likely have a chance to survive in the ride-sharing market.27 To succeed in the
ride-sharing market, the taxi industry should create its own mobile app to attract customers who
seek the convenience of using their smart phones.28 Moreover, it should adjust its pricing
structure to match the flexibility of Uber’s surge pricing model.29 If the taxi industry does not
make innovative adjustments, it will eventually become irrelevant in the ground transportation
market.
Ellen Huet, Uber Rider Might Lose Eye From Driver’s Attack, Could Uber be Held Liable?, FORBES (Sept. 30,
2014), http://www.forbes.com/sites/ellenhuet/2014/09/30/uber-driver-hammer-attack-liability/; Simon McCormack,
Another Uber Driver Accused of Sexually Assaulting a Passenger, HUFF POST (Jan. 27, 2015),
http://www.huffingtonpost.com/2015/01/14/uber-driver-sex-assault_n_6474084.html; Steve Schmadeke & Michelle
Manchir, Prosecutors: UberX driver assaulted intoxicated female passenger, CHI. TRIBUNE (Dec. 30, 2014),
http://www.chicagotribune.com/news/local/breaking/chi-former-uber-driver-charged-in-november-sexual-assaultof-customer-20141229-story.html.
27
Rafi Mohammed, The Taxi Industry Can Innovate, Too, HARV. BUS. REV. (Feb. 13, 2015),
https://hbr.org/2015/02/the-taxi-industry-can-innovate-too
28
Id.
29
Id.
26
7
V.
Conclusion
The increasing growth of Uber will undoubtedly dismantle the taxi-industry’s regulated
monopoly of the ground transportation market in most local markets. Uber’s demonstrated
weaknesses in customer privacy and safety, however, leave loopholes for the taxi industry to
make its own impact on the ride-sharing market. Ultimately, the taxi industry may be able to
survive the rise of Uber if it shifts its focus toward innovation rather than regulation.
8