In the most recent issue of The Atlantic, Megan McArdle looks at the regulatory travails of Uber, the innovative smartphone-enabled car service that has found itself in the crosshairs of competition-averse taxi commissions from D.C. to San Francisco. For the uninitiated, Uber is the answer to the question that has occurred to every harried commuter with a smartphone at some point: If these things have GPS chips, and cabs have GPS, shouldn’t I be able to use my phone to find a cab, rather than just hoping I’m in the right place when one passes? In other words, it’s the Electronic Thumb from The Hitchhiker’s Guide to the Galaxy. Uber’s plush sedans come at a premium price, but for those in need of a pickup outside a high-traffic area, it’s the convenience factor that justifies the markup. Users register their credit cards with the service in advance, and when they need a ride, fire up a slick app that shows all the Uber cars in service on a realtime map, with an estimate of how long the closest free driver will take to reach your location. At the end of the journey, the fare and gratuity are charged automatically, with a receipt and travel map delivered via email, and the app gives passengers an opportunity to rate each driver—allowing the company to ensure that it only contracts with those who are consistently safe, reliable, and courteous. By most accounts, users adore it.
Naturally, regulators hate it. DC Taxi Commissioner Ron Linton has condemned the company as a scofflaw—and seems hell bent on finding some rule they’re violating, even though his initial complaint against Uber seems to have been legally confused. Most of Linton’s public comments on the matter leave the distinct impression that these are secondary details for him: What’s outrageous is that some upstart would dare to do something new without first coming to kiss the Don’s ring and beg permission. There’s also the inevitable element of regulatory capture: Conventional cab companies would rather not face an innovative competitor, so they’re asking the government to ensure consumers don’t have the option of taking their business elsewhere. So far, a familiar story that could be told about dozens of industries. What even many of Uber’s defenders seem slow to recognize, however, is that the company’s business model doesn’t just require regulators to catch up with the tech and the times: It eliminates the rationale for having a regulator.
The default in a free society is that you can start most kinds of business, and charge whatever rate the market will bear for your services, without the approval of some municipal bureaucrat. The argument for treating cabs differently rests on the idea that, on the conventional model, they’re not as effectively regulated by normal market pressures. Comparison shopping isn’t particularly feasible when you hail a cab the old fashioned way: You just flag down the first one that happens to pass, with the understanding that when the ride’s over, you’re unlikely to ever do business with that particular driver ever again. If you’re from out of town, odds are you won’t ever do business with the company again either, and barring an exceptionally unpleasant experience, most passengers aren’t going to take the time to call the dispatcher with a review. The opportunistic, one-off nature of traditional cab transactions, in short, makes a standardized price structure more attractive, and diminishes the reputation-based incentives to compete on price and quality. So goes the usual argument, anyway.
Uber—or rather, the Uber model—changes all of that.