Don't Ban Uber, Regulate It

The very public fight over ride sharing services such as Uber was in the spotlight again last week as taxi drivers took to the streets in Toronto to protest against the ongoing availability of unregulated services. The result was a public relations nightmare: drivers comparing Uber to ISIS, engaging in dangerous activity with cars on the road, slowing the ability for an ambulance to arrive at its destination, and even injuring a police officer riding a bicycle.

The hysterics are unlikely to generate much support from the public, but they do point to the need for local municipalities to address the festering policy issue. Uber and other ride sharing services are too popular among consumers to be banned. Nor should they be. The injection of new competition and innovation is good for the public, offering more consumer choice and new economic opportunities for drivers. Indeed, much of the demand for alternatives reflects frustration with poor service that can emerge in an artificially closed market.

While Uber may be here to stay, a completely unregulated market is a similarly unrealistic outcome. The absence of any rules -- or rules that solely apply to licensed taxis -- creates some risk for consumers and leaves the existing licensed industry facing an unfair playing field.

Safety, prices, licences

So how to find a regulatory compromise?

The obvious starting point is to extend regulations that meet key public policy objectives to all service providers. Those would presumably include safety-related rules such as mandated insurance, road-appropriate vehicles with inspections, and GPS capability. In other words, regulation that better ensures the safety of drivers and their customers should apply to all.

More challenging are rules that arguably create an uneven playing field but can serve the public interest. For example, pricing is a particularly thorny issue since ride sharing services offer unregulated prices that can be cheaper than the licensed regulated rates but may also exceed those rates during "surge" pricing periods. Deregulated pricing might allow for better pricing, but could also result in unaffordable transportation options for consumers when there is high demand.

One option might be to allow licensed taxis to offer consumers the choice of fixed fees to match ride sharing service prices. That would enable licensed taxis to compete more effectively with ride sharing services, but allow consumers to choose a regulated metered fare if they prefer.

Yet even with a level regulatory playing field, there is a strong sense that licensed taxi industry will still be left unsatisfied since their frustration is about more than just a chance to compete. Rather, it would be appear that the anger stems from the realization that they must compete at all.

Artificial scarcity

As the Competition Bureau noted in its recent study of the issue, the taxi industry has traditionally been a tightly controlled business. By creating artificial scarcity of competitors through limited availability of licences (or medallions), the industry garnered enormous wealth with licences fetching hundreds of thousands of dollars.

The entry of new competitors -- whether licensed or unlicensed -- dramatically diminishes the value of those licences since they are easier to obtain and the earnings potential for drivers faces downward pressure due to increased competition. The industry may pine for a return to the "good old days" and the restoration of value in their medallions, but like many industries facing new technology-inspired competition and innovation, there is no turning back.

Instead, it must ultimately change tactics, dropping the confrontational approach that has backfired by primarily generating public support for Uber. The future of the industry does not lie in keeping drivers out of the market, but rather from trying to beat Uber at its own game.