Should Uber Get Special Treatment? A Look at Sharing-Economy Rules

UBER_HQ

Rendering of proposed Uber headquarters in San Francisco

Sharing-economy companies like Uber, Lyft, and AirBnB continue to disrupt industries as they create services that are incredibly appealing to consumers.

Whatever your opinion on these companies, the decision regarding if, and how much, they should be regulated is important. It will help determine the speed of technological innovation in the U.S. and the direction our economy takes.

At one end of the spectrum are states and cities that remain suspicious of these for-profit companies, and continue to crack down on them. Uber and AirBnB, the argument goes, skirt existing regulations, operate with an unfair advantage, and run the risk of ultimately endangering consumers.

One organization advocating for the total opposite – a lessening of regulations on sharing-economy companies – is a think tank called Mercatus Center, run by George Mason University in Virginia. It recently published a study called The Sharing Economy and Consumer Protection Regulation: The Case for Policy Change.

The report analyzes the pros and cons of regulating sharing-economy companies, noting that sharing-economy companies “make Americans better off by offering new innovations, more choices, service differentiation, better prices, and higher-quality services.”

2015-05-15_09.30.14The authors also contend that regulatory agencies “apply outdated rules to these services, without evidence that such restrictions will help average Americans.” They argue that policymakers should relax or roll back restrictions on sharing-economy companies to promote innovation and competition.

If this argument against regulation sounds libertarian to you, the Mercatus Center would disagree with you. The Center is a market-oriented institution, and a well-respected one. Christopher Koopman, one of the authors of the report, said,“ I don’t consider this to be a libertarian, or even an anti-regulatory issue. I would say, however, that our research is written from the perspective that markets work.”

The other authors of the Mercatus Center report are Matthew Mitchell and Adam Thierer. They back up their pro-market argument by citing relatively innocuous rules they contend are protectionistic, barriers to entry, and of no real benefit to consumers – that is, rules simply for the sake of having rules.

Their argument seems valid, but an example they use is New York City’s rule that taxicabs be painted the same color. They argue this regulation is a barrier to entry, yet neglect to mention that Uber also requires its drivers to adhere with automobile standards (although these standards have been loosened recently). As of this artice, Uber’s drivers must possess a late-model 2005 sedan (2000 in some cities, 2007-08 in others), with specific color and make restrictions for those who operate the company’s Black car service.

The problem with advocating for a lessening of regulations upon sharing-economy companies may simply have to do with the sheer size of some of the most popular companies. For example, Uber has a market valuation of $40 billion, and AirBnB’s market valuation is projected to be about $20 billion. Global revenues from the “sharing economy” could top $335 billion by 2025. With that kind of money on the table, it’s hard to imagine these companies properly regulating themselves.

However, it is important to remember that with every Uber and AirBnB, there are countless numbers of start-up companies also attempting to empower consumers and create meaningful innovations, and who struggle to keep the lights on.

One of the more recent results of governmental destruction of such an innovator is Haystack, the sharing-economy company created in Baltimore by Eric Meyer. Haystack attempted to solve the problem of parking in urban areas by allowing space owners to “sell” the occupancy of such spaces to other Haystack users.

Meyer passionately spoke about his app at a recent Mobility Lab Transportation Techies event. He spoke of his app’s market-based, efficient approach to a scarce resource, claiming that it would make it much easy to deal with finding parking spaces, reduce idling, and improve air quality. His company was recently forced to cease operations after being banned in several U.S. cities. Meyer himself, according to National Public Radio, was demonized in the process.

Excessive regulations do seem harmful to sharing-economy start-ups, and would appear to stifle innovation.

The sharing-economy has an image problem though. Ridesharing start-up Lyft can’t compete with the dominance of Uber, yet Uber’s success and its place on the top of the sharing-economy food chain seems to stymie the Mercatus Center’s argument.

Is lesser regulatory interference possible for sharing-economy start-ups? Can we create a system that spurs innovation but keeps mega-corporations in check? Or is that not enough of a market-based solution?

Artist rendering by SHoP Architects and photo by Paul Goddin.

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8 Comment(s)

Jim Stone

Uber is not “sharing.” Please stop referring to it as such.

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Paul Goddin

Thanks for the comment, Jim Stone. If you’re a regular reader of Mobility Lab then you understand that we absolutely do not believe Uber is a “rideshare.” (I have written several stories myself on this issue.) Calling the company part of the sharing economy for this particular story reflected the title of the report being cited, and doesn’t reflect our understanding of this company, or induced demand. We appreciate you continuing this drum beat.

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Paul Goddin

Thank you for clarifying, Matt, and for directing me (and our readers) to that informative link.

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Asher

Mr. Goddin,

There’s a crucial difference between the government levying a rule like the taxicab color, and a private firm like Uber maintaining its own standards. The private firm, let’s just say Uber, has a strong incentive not to set rules that don’t improve service.

Barriers to entry drive down driver supply. Uber must then either pay its drivers more or accept longer wait times for rides – and mostly the former, else Uber will lose customers. If the barrier to entry does improve service, Uber can institute it *and* raise prices, because customers may prefer it despite the higher price. Uber already does this with its different lines of service – pool, X, black, Lux, XL, etc.

Ultimately, the private firm has much more knowledge on what its customers want and what they don’t, so they’re generally going to avoid pointless regulations that hurt business. (Although sometimes they police themselves too little.) If the government sets a costly pointless rule for Uber, it doesn’t feel the pain, while Uber obviously does – punching holes in wall might be fun but it’s definitely painful – but not if I’m using someone else’s fist to do it.

Plus the government is subject to all sorts of lobbying, so the rules it makes aren’t always about improving service but often making it harder for one player to benefit another (eg taxis lobbying the government to make rules that make Uber pricier and less competitive).

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Paul Goddin

Point taken. Thank you for your comment, Asher.

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Mollie

You state: “If this argument against regulation sounds libertarian to you, the Mercatus Center would disagree with you. The Center is a market-oriented institution, and a well-respected one.” You also quote one of the authors as saying “I don’t consider this to be a libertarian, or even an anti-regulatory issue.”

What you’re saying, then, is that although this report sounds libertarian, its actually not affiliated with libertarianism or libertarian advocacy?

The Mercatus Center is indeed a market-oriented institution, and one that is respected in certain circles. It is also a well-known libertarian think tank with an anti-regulatory agenda. All three authors of the report are libertarian-leaning (co-author Matt Mitchell advocates libertarianism at his Mercatus blog; co-author Adam Thierer is a member of the “libertarian-minded analysts” at Tech Liberation who aim to reverse “this dangerous trend of over-regulation on the Internet” ; co-author Christopher Koopman publishes over at the ultra-libertarian Cato Institute blog).

Mercatus—which is tied to and provides private funding for GMU’s economics department, aka ground-zero for libertarianism and Austrian school economics in the US academy— was founded by Richard Fink (with funding from Charles Koch), who is also a director at Americans for Prosperity, previously served as a director of the Reason Foundation, and is currently an executive VP/board member of Koch Industries. The ten-member board of Mercatus includes, in addition to Fink, the director of the Charles Koch Foundation, Charles Koch himself, and Edwin Meese (of the Heritage Foundation). Many of these board members are also in various leadership positions at the Institute for Humane Studies at GMU, a pipeline for libertarian academics, of which Charles Koch is also the Chairman and a major funder.

It’s hard to get a more institutional right-wing libertarian line-up than this, and the report itself draws heavily on other Mercatus/GMU Econ scholars’ work, as well as other libertarian advocacy organizations such as Cato Institute, American Enterprise Institute, the Free State Foundation, and FEE. Thus the claim made by both you and the authors that the report is unrelated to anti-regulatory libertarian activism is simply not true.

It wouldn’t have been an inssue if you’d been transparent about the report’s origins, and noted that if it sounds libertarian, well, that could be because it comes from a libertarian-oriented institution. You could still have argued its merits without deliberately misleading your readers.

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Paul Goddin

Thank you for your thoughtful response, Mollie. I wasn’t trying to deliberately mislead readers, as you put it, but was only attempting to be fair to the subjects of the story, which, when asked whether Mercatus was a libertarian think-tank, responded that it is actually a market-based one. That argument may be semantic, but I didn’t feel qualified to judge that (although readers may). Also, I was trying very consciously to remove my own biases and politics from the story, and it is interesting that this process actually led to your perception of non-transparency. This is an example of a story where — as you can see from the other reader comments — I tell myself, “Darn it, this could have been better.”

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