Let Markets Forces Regulate – Taxicabs

In this Freeman article I argue that “the sensible response” to any unfairness to taxicabs from competition from Uber, which has so far avoided government restrictions, “is not to burden Uber the way taxis are burdened, but to unburden the taxis and leave all ride services free to compete.” Two commenters on Facebook were not persuaded. Here are four of their challenges and my responses:

There is a reason to regulate some markets. Have you ever met a taxi company owner?

I agree that markets should be regulated. But free market forces regulate them better than government agencies can, so to get good regulation we need to stop impeding market forces. What’s doing more to discipline shady taxi company owners, government regulations or competition from Uber?

What happens if Uber goes away? What then? I love and use Uber but am not in favor of a drastic change to the current structure.

Is it even conceivable that, in a free market, if Uber should go away, no other company would come in to take its place? It’s inconceivable unless people stop wanting to earn profits. Already Lyft and other imitators of Uber are starting up, with Uber still very much on the scene.

I…wonder how unaffordable a taxi fare might become for so many people.

If taxicab companies were to set fares unaffordably high, other companies would have an incentive to gain business by charging less. Indeed, the profit-maximizing price might be on the low side if lower prices should mean a lot more customers. Under the current system of government-set fares, however, no taxi is allowed to lower its prices in order to win more business.

The [government] regulations need to exist to mandate floors for insurance coverage, driver licensing, vehicle safety, driver hours and other things that companies will cut in the race to the bottom price.

(Note that this commenter is worried that prices would be too low, while the former is worried that they would be too high.) The comment seems to assume that companies appeal to customers only on price, and cut their prices by cutting corners on quality.

That’s not so. If government taxicab licensing boards did not impose one set of standards that we all must take or leave, cab companies and associations would have the incentive Uber has to persuade customers of their overall quality. Uber checks would-be drivers’ backgrounds, requires more insurance than taxi regulations do in most cities, and holds driver performance to high standards: Uber drops drivers from the system if their average customer satisfaction ratings fall below 4.6 out of 5.

This means that with Uber, every rider is a regulator of quality and performance. Government regulation of quality and performance is unnecessary.

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