Company Making Cab/Limo Rides More Efficient Ordered To Stop

from the regulatory-mess dept

Mon, Oct 25th 2010 2:49am — Mike Masnick

I do a fair amount of traveling, and I've found that one of the more interesting things to do on arriving a new city is to chat with a cab driver about whatever is they feel like talking about. Inevitably, I end up hearing about the absolutely ridiculous bureaucratic nightmares involved with being a taxi driver. Now, you can tell that many of the issues started out as legitimate issues, involving safety and route control, but over time, almost everywhere I've gone, they've turned into pure regulatory capture in an attempt to keep competitors out. We've seen in the past how these sorts of rules have gotten in the way of innovative new startups. There was the situation in Ontario where an operation called PickupPal that set up carpool rides was deemed illegal and fined. Then there was the situation in Tampa, where some startups had started offering "pay what you want" taxi rides, subsidized by advertising, and the existing taxi regulatory committee shut it down.

In the latest example, a company named Ubercab, which lets you use your mobile device to hire a car service/limo (not a taxi) on the go, and handle all the payment through the device, has been ordered to cease & desist. The details are not entirely clear in that report, but it appears the complaint is that this service turns car service/limos into "unlicensed" cabs. Most rules forbid car services from "picking up" rides on the fly. Instead you have to book them ahead of time. But Ubercab allows you to book them on the fly. From what I can tell, it's more expensive than a cab, but cheaper than a normal car service (which makes sense). Now, the SF Metro Transit Authority & the Public Utilities Commission of California, who sent the cease & desist will almost certainly claim it's a "safety issue" or some such nonsense. But, the reality is that it's an attempt to limit competition.

Of course, all this has really done is give Ubercab that much more attention, which they're milking (as they should -- hello Streisand Effect). They're refusing to cease and desist and appear to be poised to fight this. One of the company's founders/investors has said that they'll hire any taxi dispatcher who's fired, though I'm not entirely clear how that fits. If their service focuses on car services/limos, what's that got to do with taxi dispatchers? Either way, this does seem like a case where yet another bureaucracy, fueled by regulatory capture by the industry it regulates, is seeking to block out innovative competition.

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Filed Under: cabs, efficiency, limos, regulations, regulatory capture, san francisco
Companies: sf metro transit authority, ubercab

42 Comments

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justok (profile), 25 Oct 2010 @ 4:00am

Is the a definition of how far ahead you have to book? Seems like a time-loop hole.
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Ray, 25 Oct 2010 @ 4:17am

Hiring taxi dispatchers
I think what they're saying is that if, as a result of Ubercab's "unfair" competition, a taxi dispatcher loses their job, then Ubercab will hire them on as an apology.
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out_of_the_blue, 25 Oct 2010 @ 4:30am

Supply and demand isn't straight-forward.
If the number of cabs on the street isn't limited -- artificially, by force -- then the number will rise until it's unlikely that any given driver will be able to meet expenses, leading, at best, to cycles of shortages and gluts. Something has to moderate (slow down the response of) systems that contain high incentives that lead to more entering the field. (Speaking of fields, the reason why farm workers don't require licensing is not many wish to enter when rewards are so low.) Anyway: high incentive without *imposed* limits leads to cycles of boom and bust. While you might think that city licensing creates an "artificial shortage", it's actually *avoiding* a "natural variability" that would otherwise at random times highly inconvenience you.
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Richard (profile), 25 Oct 2010 @ 5:03am

Re: Supply and demand isn't straight-forward.
The only reason for such a boom/bust cycle is the artificially constrained starting point. Over time such cycles will die down and a stable equilibrium will result.
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Dave Reed, 25 Oct 2010 @ 5:19am

Re: Supply and Deman isn't straight-forward.
Both Richard and out_of_the_blue seem convinced their statements are correct, yet they are in direct opposition. Can anyone offer any evidence to support either theory? A city that experimented with "no limits" cab driving?

Are there other industries with low entry requirements and high incentives that could be used as an example?

What about a city where unlicensed cabs are commonplace, do they push the price down until cab drivers are forced to work at McDonalds?

I want Richard to be right. I THINK Richard is right. Capitolism is based on the idea that Richard is right. Can we prove Richard is right?
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Danny Devito, 25 Oct 2010 @ 5:30am

Re: Hiring taxi dispatchers
"taxi dispatcher loses their job, then Ubercab will hire them on as an apology"

Awsome
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abc gum, 25 Oct 2010 @ 5:32am

Re: Supply and demand isn't straight-forward.
"systems that contain high incentives "

Driving a taxi ... really?
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Michael, 25 Oct 2010 @ 5:32am

Re: Re: Supply and Deman isn't straight-forward.
You are thinking too small. Do not try to compare this case to a city with an infinite number of cabs. I mean, you could probably compare it to third-world countries that have no taxi regulations, but you do not need to go that far.

This fits with ANY service-model business. Let's go with pizza delivery. I live in a suburban area rather than a city, but I can think of 6 pizza places that will deliver to my house. Last year, that number was 8. Over that past 12 years, many have come and gone. The reason is simple - the area cannot support that many pizza delivery services. Of the ones that are there, 2 have been there as long as I can remember. One of them is Dominoes - I think they have been there that long because they are cheap and in hard times, the company can afford to take a loss for awhile. The other one that has been there forever is a bit on the expensive side but everyone knows (except Dark Helmet - who would argue that the pizza outside of Chicago sucks) that their pizza is REALLY good. So, they have differentiated themselves in a way that the market keeps them alive.

out_of_the_blue makes a logical assumption that market saturation will be even across everyone in the market and that everyone in the market has the same failure point. Both of these assumptions are wrong. Some competitors will distinguish themselves and continue to have more sales than the others while some competitors can simply survive longer with little or no profits and simply weather the storm. Yes, you may have times when the market is more saturated and prices will be driven down for everyone (oversupply), but that is what forces a market to innovate, cut costs, and produce a better product. Those that can will survive, those that cannot will fail.
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KnownHuman (profile), 25 Oct 2010 @ 5:41am

Re: Re: Supply and demand isn't straight-forward.
"Driving a taxi ... really?"

Win.
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Andrew D. Todd, 25 Oct 2010 @ 5:41am

Taxicab as Mobile McDonald's.
Here is a link to a piece I wrote about the subject a few months ago.

http://www.hnn.us/board.php?id=124711

comments to:

http://www.hnn.us/articles/124711.html

What it comes down to is that the tendency of communications and electronics is to "McDonald's-ize" taxicabs, by tying them into the network, and making the relevant information available to all interested parties, subjecting the cab driver to close supervision from afar, etc. If you exclude long-distance runs, such as airport runs, a taxicab driver could probably rack up at least two "revenue trips" per hour, and, based on minimum wage, fares could be correspondingly low. McDonald's does not pay uniformly high wages to ensure a labor supply during the lunch rush. It does expect store managers to pitch in at need.
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out_of_the_blue, 25 Oct 2010 @ 5:41am

Re: Re: Supply and demand isn't straight-forward.
Yes, high to those without other readily marketable skills than being able to drive a car. In fact, in the right area, it can be *highly* rewarding, that's why turf is fought over by organized gangs -- I mean corporations. It's a favorite with recent immigrants, and I'm fairly certain "unlicensed" cabs can be found in any big city.
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out_of_the_blue, 25 Oct 2010 @ 5:46am

Re: Re: Re: Supply and Deman isn't straight-forward.
No, I assume taxicabs in medium and up size cities. Don't confuse it with *marketable* distinctions. Sure, if you *call* your favorite cab company, that's one thing, but if you're at the airport, you just take the next in line. -- See, even "next in line" is a *convention* agreed upon by regulated drivers. Otherwise, there'd be traffic problems as every driver tried to get next to the door. You people keep looking at a *well-regulated* society and mistaking it with notions of the superiority of *raw capitalism*, when it's NOT.
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Bill Lawrence, 25 Oct 2010 @ 5:53am

Re: Supply and demand isn't straight-forward.
I think we need a Federal Government bureau to oversee and administer the Taxi program. We certainly wouldn't want startups entering the market and becoming successful because they offer better service. Competition is a bad thing, right? On the other hand, maybe we would finally get clean cars, and drivers without offensive body odor. What do you think?
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The Mighty Buzzard (profile), 25 Oct 2010 @ 6:23am

Re: Supply and demand isn't straight-forward.
Point of fact: they choose to, they do not have to.

The trouble with politicians is they want to be in charge of things, hence the whole running for office to begin with thing. So of course they pass laws that put them in charge of things they have no business screwing around with. We really should be electing them on what they'd repeal rather than what they'll pass.
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Sean T Henry (profile), 25 Oct 2010 @ 6:43am

Re:
Thats what I was thinking you are not being picked up on the fly you are scheduling to be picked up in the very near future. Flagging down a limo for a ride would be a violation though.
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Brad, 25 Oct 2010 @ 6:47am

This is more a regulatory issue than supply and demand!
I own a limousine company, and I will tell you that from a regulatory perspective, a private car or limousine service is VERY different from a taxi service. In most jurisdictions I'm aware of, you need far more regulatory approval to run a taxi than to run a limo. The division between the two types of service is precisely the issue in this case - how the company obtains clients. Taxis are in most cases literally grabbing passengers off the street, whereas limo companies are usually working with prearranged reservations. If you book with my limo company, you have ample opportunity to compare prices, compare vehicles, ask your friends about the company reputation, etc. When you hail a cab, you get whatever pulls up to the curb first. Doesn't it make sense that taxis be regulated, to ensure that what you're hailing from the sidewalk is legit?

Complying with regulatory agencies is sometimes neither cheap nor easy, so unlicensed cabs are a huge problem in this industry, both for legit limo operators and legit taxi operators. I have had clients "scooped" by unlicensed cabs at the airport several times, they are a very real issue.

The fact is that Ubercab does not interfere with my own business - our home base city is too far from the major airport for cab companies to bother with - but if I were a taxi operator in a major city, Ubercab would piss me off a lot for skirting all the regulation legit taxi operators are going through so you can get home from the airport for a low price, with a driver who has had a background check.
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ChrisB (profile), 25 Oct 2010 @ 6:54am

Re: Re: Re: Re: Supply and Deman isn't straight-forward.
> You people keep looking at a *well-regulated* society
> and mistaking it with notions of the superiority of *raw
> capitalism*, when it's NOT.

It is not like capitalism has no regulation. Look, here's how it would run. Every driver must be licenced to drive a cab and would have to pass training of some sort (e.g., safe driving). Every cab must be inspected every year so it is safe to transport people. Other than that, all the other stuff you describe, the "cycles of boom and bust" is just capitalism, which is the most effective system for allocating scarce resources.

> See, even "next in line" is a *convention* agreed upon by
> regulated drivers

Wrong. The airport determines the convention. An airport is private property, not a free for all. For example, my city airport just signed an agreement with a cab company to provide all the outgoing pickups at the airport. This is totally in-line with capitalism.

If a car is safe, and the driver isn't a crazy person, I couldn't give a s**t if he isn't making more than minimum wage. Why should the municipal government prop up a monopoly? There are many other similar services -- plumbers, caterers, etc. -- that don't get an artificial monopoly; why should cabbies?
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Bubba Nicholson, 25 Oct 2010 @ 6:57am

Defending Taxi cab companies
Our court system was developed in the 15th century and would never stand up to modern Scientific standards of evidence. Likewise Taxi regulations and requirements are outmoded, right? In the age of GPS, is it really necessary for cab drivers to memorize the streets of London? Why should a taxi license cost $35,000.00? Taxi 'regulation' has always been an excuse to place economic barriers to entry against potential rivals. Or is that the only reason? Why is this allowed? What is the advantage to creating a taxicab cartel? 1. Fewer taxicabs on crowded streets. 2. Better paid taxicab drivers. 3. Vetted taxicab drivers, i.e. most criminals excluded. 4. Consistent (but always higher fare/mile) rates. 5. Mechanism for dispute resolution. Law enforcement cooperation via taxicab company record-keeping. 6. Cars can be maintained by individual drivers more cheaply than cab companies, yes, but taxi drivers might be inclined to under-maintain and over-utilize outdated, polluting equipment. Consistently clean cabs in good mechanical repair, meeting air pollution regulations usually benefit the traveling public's perception of a city or locality. A jitney system, like that here in Tampa, works well when just starting out, because all the vehicles are new and there are only a few of them. With time, the free-for-all degenerates into piles of junk littering and congesting the roadways exactly where such traffic is undesirable for the city as a whole.
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Stuart (profile), 25 Oct 2010 @ 7:00am

Re: Re: Supply and Deman isn't straight-forward.
I am actually a systems manager at a cab company in a metropolitan area. I have seen boom bust. It dose not affect the good drivers much. They have personals that use them exclusively. As much as possible. The regulations are pathetic. Every car has to get permitted every year. It fails if the A/C is not cold enough, the car has scratches or dents, the tint on the windows is anything other than PERFECT (we just remove it), the outside of the cab is dirty, or any of a slew of other minor things. Do they check the driveability of the vehicle, weather or not airbags are installed, if the brakes are in good condition or if the vehicle even can do more than start and idle? No. They limit competition and impose rules because they are government. If they are not comming up with a new rule or regulation then they are seen to be doing nothing.
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Joe K (profile), 25 Oct 2010 @ 7:22am

Re: Re: Re: Supply and Deman isn't straight-forward.
Capitalism needs regulation to work well. We need government regulations to avoid "unfair" competition. Much of our recent economic failure could have been prevented by better regulation. The problem is that government regulation often degenerates into a corrupt system that actually breaks fair competition, as seen here by this article and by Stuarts comments. It is similar to the modern abuse of the patent system. We need to spend more effort on removing bad laws instead of always adding new ones.
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The Mighty Buzzard (profile), 25 Oct 2010 @ 7:37am

Re: Re: Re: Re: Supply and Deman isn't straight-forward.
That wasn't a failure, that was just life happening. If someone breaks the law and cheats, throw them in jail with my blessing. Otherwise I'll thank you to keep your oppressive paws off my system of commerce.

And no, it is the exact opposite of the patent system. Patents are the government putting its grubby hands on capitalism to regulate it. Works dandy, doesn't it?
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nasch (profile), 25 Oct 2010 @ 7:52am

Re: Re: Supply and demand isn't straight-forward.
Maybe we need the government to regulate ALL markets! I mean, if unfettered competition and unrestricted supply is bad for the taxi market, why would it be good for watermelons, or boxer shorts, or non-stick skillets? Think of the cycles of glut and shortage of non-stick skillets that we all suffer! When will it end?
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nasch (profile), 25 Oct 2010 @ 7:58am

Re: This is more a regulatory issue than supply and demand!
The PROPER solution to the Ubercab "problem" is to remove the stupid and useless regulations, not to shut down the new competition. But we all know how likely that is.
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nasch (profile), 25 Oct 2010 @ 8:05am

Re: Defending Taxi cab companies
What is the advantage to creating a taxicab cartel? 1. Fewer taxicabs on crowded streets.

If there are too many taxis, the market will sort it out. That is, prices will drop until it's no longer profitable to put more taxis on the road. Reducing the number of taxis is just a subsidy. It raises prices of taxis (subsidizing the taxi providers) and also forces some people to use another form of transportation (thus subsidizing that too). The only possible benefit is that maybe more people would walk or bike, thus improving health.

2. Better paid taxicab drivers.

Again, this is due to market distortion. Any market would result in better paid employees (or at least providers) if supply were artificially restricted, but that isn't a reason to do it.

3. Vetted taxicab drivers, i.e. most criminals excluded.

This is a good thing to do. We don't want, say, alcoholics or dangerous drivers driving taxis.

4. Consistent (but always higher fare/mile) rates.

If there's competition and customers want consistent rates, somebody will choose to compete by keeping their rates consistent. No regulation necessary.

5. Mechanism for dispute resolution. Law enforcement cooperation via taxicab company record-keeping.

Record-keeping is good if it doesn't get out of hand.

6. Cars can be maintained by individual drivers more cheaply than cab companies, yes, but taxi drivers might be inclined to under-maintain and over-utilize outdated, polluting equipment.

Safety and emissions testing is good. Another poster related that in his city the testing is focused more on cosmetics, which is something the market can take care of just fine.
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Michael, 25 Oct 2010 @ 9:15am

Re: Re: Re: Re: Supply and Deman isn't straight-forward.
"take the next in line. -- See, even "next in line" is a *convention* agreed upon by regulated driver"

As was pointed out, this is the airport enforcing this "convention". And where it is not the airport, there is no regulation. Cab drivers can be jerks anywhere they want to on public roads (as many are). However, the cab companies get a bad reputation if this happens, so they discipline bad drivers - this is part of making your brand distinctive.

I would even argue that safety regulations are, to some extent, unnecessary. Why should a cab be scrutinized more than any other car on the road? If a cab company came to have a reputation for having unsafe cars, do you not think the market would "fix" this issue? If there was a rash of unsafe cabs in NY, how long would it take to find cab companies advertising that they have good safety records and when their cabs were last inspected. If you need a regulation, force them to put a phone number on the inside of the cab to call if there appears to be a problem with it.

This notion of needing regulations for "most" of what is regulated in the taxi industry is hogwash. I only say "most" because I cannot think of everything, but I cannot come up with any reasonable reason (feel free to give me an example and I will try to argue it). It is sold to consumers by the prevailing cab companies who want a way to drive up the cost of competing.
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Chris Rhodes (profile), 25 Oct 2010 @ 9:19am

Re: Supply and demand isn't straight-forward.
Music too! Too many people making music spreads the profits too thin for anyone to make a living! We need the government to step in NOW to force people to stop making music! Every guitar should require a $35,000 music license!
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Michael, 25 Oct 2010 @ 9:31am

Re: Re: Re: Re: Supply and Deman isn't straight-forward.
"Much of our recent economic failure could have been prevented by better regulation"

I assume you mean the mortgage collapse in the US? The regulations were actually a big part of the problem and are preventing the re-growth now. Have you tried to get a mortgage lately? For someone with good credit and 30% down, it can take months to get through the red tape. It's a mess.

Balanced, competitive markets are self-regulating. Now, I understand that not all markets can be balanced and competitive simply because the cost of entry is so prohibitive (although that is probably a point that could be argued against). Taxi's should not be a market with a high entry point, but regulation has artificially made it one.
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Michael, 25 Oct 2010 @ 9:45am

Re: This is more a regulatory issue than supply and demand!
I really do feel for you as an entrepreneur trying to make his way in a tough industry. I hope it works out for you.

I would argue that you calling it a problem that you have had "clients 'scooped' by unlicensed cab" is really identifying a business model problem more than something that should be handled by the government. Now, please stop and breathe for a minute - I know that will be emotional for you.

Now, let's look at this:
Say I own a restaurant across the street from a corporate park. I serve lunch for about $10 per person. A guy with a sandwich truck decided to park on the road between the corporate park and my location and serves lunch at $8.

Ugh. That sucks. Call the police. Let's make sure that guy spent as much as I did for setting up his restaurant. I would probably like that option - and if I had it, I would use it. However, in a free market, that is the best thing that could happen for the consumer. Now, let's say that guy uses dirty water for cooking his hot dogs. He makes 10 people sick on Wednesday - how does my Thursday look? On the flip side, let's say his food is good and safe - now I have two options, close up shop, or compete. Now, I offer a delivery service and drop my price to $9. The consumer wins.

I know you will say "that's different", but these are two industries in which safety is an issue (bad food = crashed limo = death). It may be difficult for you to compete with the independent guys that swoop in, but since they are doing it, you can do something similar. Now, if you have a better understanding of the customer (which you probably do), you can probably do something EVEN BETTER. That's how the market will mature. Regulating that guy out allows you to keep your business model static. Competition forces you to innovate, you just need to be fast enough on your feet and have a better understanding of your customers.
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Matt (profile), 25 Oct 2010 @ 10:30am

Re: Re: Defending Taxi cab companies
Don't disagree with your underlying point, but:

4. Consistent (but always higher fare/mile) rates.

If there's competition and customers want consistent rates, somebody will choose to compete by keeping their rates consistent. No regulation necessary.

This feels wrong. It assumes rate consistency, transparency, and repeat participation (of consumers) in the marketplace, none of which may be present in a market that largely serves guests to the market.

There are obvious solutions, some of which would almost certainly be implemented, like an option to buy cab service (say on a punch card) before travel after researching rates.
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nasch (profile), 25 Oct 2010 @ 12:13pm

Re: Re: Re: Defending Taxi cab companies
I should have been more specific. The more closely the market approaches perfect competition, which includes buyers having more or less complete information, the more it will force things that customers want, such as rate consistency.

However, rates aren't set by the government. The cab companies are free to wildly vary their rates right now, and they don't. Are the consistent rates we see now due to some kind of market interference? It doesn't seem likely.

In the absence of any evidence that unregulated supply would lead to large cycles of glut and shortage, regulating supply is a bad idea. Even with such evidence it might be a bad idea.
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ant6n, 25 Oct 2010 @ 12:13pm

Re: Re: This is more a regulatory issue than supply and demand!
I think the analogy would work better if the first restaurant has to pay several tens of thousands of dollars a year for a food serving license. Then it cannot go lower than 10$. Yet the guy with the sandwich truck does not pay that fee, because he pretends that he is a supermarket.

I'd personally want that the sandwich truck exists, but it might be unfair competition; and the owner might be doing something illegal.

I think the big question is what pre-arranged booking really means. Is there a minimal time between booking a ride and taking a ride? Can there not be an intermediary (like the app)?
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ldtowers, 25 Oct 2010 @ 3:48pm

Re: Re: Supply and demand isn't straight-forward.
Oh please. The market never results in better products or services. It ends up with the promise of better products or services while trying to keep labor costs at the absolute minimum. Only hacks who own their own rides make any money. Just driving around you are a serf.
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ldtowers, 25 Oct 2010 @ 3:52pm

Re: Re: Re: Re: Re: Supply and Deman isn't straight-forward.
Balanced, competitive markets are self-regulating.

This has never actually been true in practice. There is no such thing as equilibrium. I defy you to present a single example.
The reality is only cartels are self regulating, in the worst way.
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nasch (profile), 25 Oct 2010 @ 4:42pm

Re: Re: Re: Supply and demand isn't straight-forward.
The market never results in better products or services.

The market hasn't resulted in products and services better than the ones we had 10 years ago? Or 150 years ago? That may be the dumbest thing I've heard all day! And I've been reading TechDirt!
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nasch (profile), 25 Oct 2010 @ 4:44pm

Re: Re: Re: Re: Re: Re: Supply and Deman isn't straight-forward.
Who said anything about equilibrium? Competitive markets are in a continual state of change.
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nasch (profile), 26 Oct 2010 @ 8:19am

Re: Re: Re: Re: Re: Supply and Deman isn't straight-forward.
I think the problem with letting the market sort out safety is that while liability/negligence lawsuits might do the trick eventually, you would have people getting injured or killed in the process, and I don't think the free market is worth that price.
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btr1701 (profile), 26 Oct 2010 @ 12:07pm

Re: Time
> Is the a definition of how far ahead you have to book?

Most cities/states that regulate this sort of thing require a one-hour window between booking and pickup.
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ike, 23 Nov 2010 @ 9:49am

Re:

Seems like a time-loop hole.

I feel like I'm in a Star Trek time travel episode!
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Alan Flrida (profile), 5 Mar 2013 @ 10:19pm

I agree.
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