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4 An Economic Framework for Regulation of Shared Mobility Services
Pages 66-82

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From page 66...
... Moreover, the technologies on which TNCs rely appear to be disrupting the regulatory model that has long applied to taxis and limousines, raising questions about whether existing regulations require revision, an issue taken up across multiple regulatory dimensions in subsequent chapters. The Economic Benefits and Costs of Shared Mobility Technology-enabled mobility services bring with them an array of economic impacts, both certain and speculative, small and large.
From page 67...
... New services can disrupt existing business models and regulatory regimes. Powerful new ideas and technology often offer consumers new services and potentially offer investors an opportunity for handsome returns, but in so doing, they can threaten the financial viability of incumbent firms and the livelihoods of the people they employ.
From page 68...
... If current trends continue, these services could have a much larger and more transformative effect on travel behavior and metropolitan transportation systems. For example, car- and bikesharing services, TNCs, and yet-to-emerge innovative shared mobility services could not only offer significant mobility benefits for those who lack access to or the ability to drive a private vehicle, but also encourage many more current drivers to own fewer cars and travel more by other modes.
From page 69...
... or as a flexible backup when other modes -- such as bus, train, carpool, or vanpool -- could not adjust in response to unanticipated changes in travel or during times of limited or no service. If such travel markets expanded dramatically, innovative shared mobility services and traditional taxi services might well coexist comfortably, leaving intact the important social service roles played by taxis in many cities.
From page 70...
... Dispatch taxi and livery firms reduce information and negotiation costs by incurring large up-front costs. Dispatch service promises a vehicle that will come to the passenger within a reasonable amount of time or at a predetermined time.
From page 71...
... Cities enacted these regulations to solve real problems. However, standard microeconomic theory suggests that many of the attributes of the dispatch industry -- price controls, quantity controls, location controls, and a market structure that tends toward monopoly -- create inefficiency and poor service (Demsetz 1982; McAfee et al.
From page 72...
... Certainly some TNCs' advantages arise simply from lower levels of regulation: Uber and Lyft are not subject to price, location, or quantity controls and often face less costly requirements for vehicle liability insurance, driver background checks, and vehicle inspections. But these companies also have created a business 2 To be clear, some cities do allow increased fares or surcharges during snow emergencies.
From page 73...
... TNCs can employ surge pricing effectively for four reasons. First and most obviously, they are not subject to formal price controls, so they can legally raise or lower their fares in response to changing conditions in nearly real time.
From page 74...
... Moreover, customers knowingly and freely pay surge rates: the higher rate is displayed as soon as the phone app is opened, and passengers must explicitly consent to the increased rate by typing it into their mobile device. Thus while riders almost certainly do not like high prices, and little evidence suggests they are being deceived into paying them, the 4 Drivers throughout the taxi industry can also choose when and how much they work, but since fares are typically regulated, taxi prices cannot surge pricing when demand increases.
From page 75...
... Thus while price controls enhance equality, they may do so at the expense of quality: during times of high demand, instead of making rides more accessible to everyone, price controls simply may make rides equally inaccessible by subjecting everyone to a shortage. From an economic perspective, concerns about the inability of low-income people to afford transportation should ideally be addressed by programs that explicitly target low-income travelers, not by laws that lower prices across the board.
From page 76...
... It is therefore a natural concern that one or two large companies might come to dominate the ride-for-hire industry in many markets. What would happen, for example, if Uber and Lyft began colluding and raising prices or if Uber were to buy Lyft and become the lone dominant TNC?
From page 77...
... Nonetheless, freedom from market dominance by one TNC is by no means guaranteed. One could imagine commercial practices that would facilitate dominance, such as ubiquitous service coverage that consistently gave one TNC response time advantages over competitors, a dominant TNC that required drivers to work exclusively for that company, or the preloading of smartphones with the app of a single TNC.
From page 78...
... Without this mix of trips, drivers spend precious time and fuel deadheading back to more lucrative areas. TNCs in the current regulatory regime have an advantage over taxis insofar as they have better opportunities to avoid deadheading when crossing jurisdictional boundaries within a metropolitan area.
From page 79...
... Of the many technology-enabled mobility services that have emerged to date, TNCs have resolved this tension most successfully because their apps not only provide greater transparency for drivers and passengers, but also reduce the up-front costs for the firms themselves. In the short run, this innovation, combined with a typically lighter regulatory burden, allows TNCs to offer, at least in some instances, service and pricing superior to those of traditional taxis while incurring fewer of the regulation-associated costs that taxis must bear, potentially eliminating social costs in the process, as described in subsequent chapters.
From page 80...
... The taxi industry is responding to the competition from TNCs by beginning to adopt technologies that match passengers with drivers. On the other hand, regulating TNCs more heavily could undermine many of their price and responsiveness advantages (if, for instance, controls on surge pricing were applied to the currently variable TNC fares)
From page 81...
... If TNCs continue to erode the demand for taxis in for-hire transportation, regulating authorities may have a more difficult time attaching conditions to taxi licenses for purposes of geographic coverage and service for passengers with disabilities.
From page 82...
... 461–465. New York State Attorney General.


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