How Uber, Tesler Are Disrupting Transportation Monopolies: Viewpoint

By Bloomberg Editors | April 22, 2014

Question: What’s an automotive monopolist’s worst nightmare? Answer: Uber picks you up in a Tesla.

Two big Silicon Valley companies are busy disrupting state-sponsored transportation monopolies. Uber is competing with locally regulated taxi companies, and Tesla wants to sell its electric cars directly to the public instead of through state-protected dealerships. Different issues arise in each case, but because competition is a good thing, both of these disrupters deserve to succeed.

Most states have laws that prevent auto manufacturers from selling straight to consumers, but Tesla has been sidestepping the rules by setting up showrooms that let consumers place orders over the Internet. The dealers don’t care much about Tesla — its share of the market is tiny — but they’re scared stiff that bigger producers will follow its example. So they should be.

The dealers say they provide protections that consumers need, by doubling as service centers. If you believe that, they’ve also got a late-model, lightly used roadster that’s just what you’re looking for. Consumers don’t need vendors to double as mechanics. Independent maintenance and repair centers — typically offering lower prices — are already a big business. So long as they do a good job, they’ll grow even larger once dealers lose their sales monopoly and the warranty-related work that comes with it.

Dealers understand the danger all too well and are fighting back — spending millions of dollars in campaign contributions. Five states have adopted laws or regulations that actually tighten bans on direct auto sales. Several others have prohibited Tesla from opening new showrooms or put limits on the company’s sales. Tesla has economics and common sense on its side, but that won’t be enough. The company needs to get public opinion behind it and press state or federal lawmakers to lift restrictions that were a bad idea in the first place.

Uber and other services like it, such as Sidecar and Lyft, are also running up against government-sponsored monopolies. Licensed taxi drivers and owners from the Golden Gate Bridge to the Champs Elysees are in uproar. Again, monopolistic profits are at stake. And again, consumer protection is at issue — though in this case safety concerns are partly legitimate.

Restrictions on the number of taxis in operation make no more sense than telling Tesla it can’t sell cars direct. Governments rig taxi markets by restricting licenses, ensuring that demand outstrips supply. The resulting excess profit gets bundled into the price of a license: In New York City, they fetch more than $1 million apiece. Consumers, meanwhile, can’t get a cab when they need one.

The supply of taxis should be allowed to expand as the market dictates — but that doesn’t mean no regulation at all. Rather than shutting down Uber, as a court in Brussels did this week, governments should place all competitors on the same regulatory footing. All operators should be required to adhere to basic standards, such as regular vehicle inspections, safe driving records and minimum insurance requirements. That’s the system New York uses for livery cars that can be hailed only via phone or app. Uber has accepted those regulations and thrived in the market. It should be willing to do the same elsewhere. If ratings by users were an acceptable substitute for safety regulations, as Uber argues, there’d be no need for restaurant health inspectors.

It isn’t a question of competition or regulation. It’s a question of serving the interests of consumers, not producers.

–Editors: Francis Barry, Clive Crook

 

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Latest Comments

  • May 23, 2014 at 5:02 am
    Lyla says:
    Los Angeles only requires a class c. But there are drug tests five times per year the driver must drive 50 miles away to get and pay $50.00 for. The Association sends the so... read more
  • May 23, 2014 at 4:54 am
    Lyla says:
    The City Government gets about $5,000 per cab per year for its seal or medallion in Los Angeles. They have a Dept. of Transportation DOT law enforcement officers that make ON... read more
  • May 8, 2014 at 7:50 pm
    ClaimsAdjuster says:
    A recent NBC Bay Area Investigative Unit broadcast shows that shows Uber’s policies can leave drivers and passengers in the lurch if there are accidents. And despite adminis... read more
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