Can the FTC Stop Taxi Commissions From Crushing Uber?

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March 12 2013 12:15 PM

Can the FTC Save Uber?

Taxi commissions are crushing disruptive transportation apps.

Brendan Kownacki rides in the UBER Car that he beckon via a smartphone app in Washington, DC on July 16, 2012.
Las Vegas, Washington, Chicago, and Cambridge, Mass., have all tried to ban Uber, the San Francisco-based startup that connects riders to luxury black town cars and SUVs on the fly

Photo by Linda Davidson/The Washington Post/Getty Images

In 1984, the Federal Trade Commission released a report that explained why taxis could charge customers exorbitant prices for dismal service. The simple reason, according to the 176-page study: lack of competition in the market. The culprit: local governments. City agencies that regulate cabs, generally called taxi commissions, were deliberately protecting from competition the very companies they were supposed to police. With no legitimate safety- or health-related reasons for doing so, the taxi commissions artificially limited the number of cab companies competing on the streets by restricting the number of available licenses. Armed with this report, the FTC took action. It made an example of two of the worst markets, Minneapolis and New Orleans, by filing lawsuits against the local governments and accusing them of illegally colluding with private taxi companies to crush competition and fleece residents. (The results of those lawsuits were mixed—more on that in a minute.)

In 2007, two decades after those cases settled, the FTC noted that the taxi industry remained largely uncompetitive. The FTC staff also observed, however, that “telecommunications advances” might help to disrupt these uncompetitive markets.

Today, this predicted disruption might finally be on the horizon, exemplified by companies like Uber, SideCar, and Lyft that all created mobile apps to revolutionize the ride-for-hire market. But, as before, city taxi commissions are working to stifle competition.

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Most recently, Las Vegas, Washington, Chicago, and Cambridge, Mass., have all tried  to ban Uber, the San Francisco-based startup that connects riders to luxury black town cars and SUVs on the fly. Other cities’ ordinances are hopelessly stacked against the company. Miami’s requires impossibly expensive minimum fares ($80), while Cambridge attempted to shutdown Uber altogether, claiming that since a national standards and measurements body had not certified the company’s use of GPS technology for taxi metering, Uber was violating the law. (Cambridge relented the following day.) New York City, which last year declared Uber illegal, is now cautiously experimenting with the company but has not fully committed to allowing it to compete.

Younger companies like Lyft and SideCar disrupt transportation in a different way: Anyone with a car and background check can provide rides to a willing rider for a suggested fee. These companies have faced their own issues. SideCar planned to offer rides during SXSW, the annual technology festival in Austin that helped launch Twitter and Foursquare into public consciousness years ago. But the city of Austin threatened to shut SideCar down and arrest willing drivers during the festival. SideCar responded by offering free rides and then filed a lawsuit against the city of Austin, arguing that their business does not violate Austin’s Transportation Code.

Uber, SideCar, and Lyft are not simply a fad—they are the first indications of a transportation revolution now receiving considerable venture investment. So far, these companies have battled incumbent taxi companies city-by-city, facing off against city taxi commissions that are biased against them. But the harms they’ve suffered will only continue to grow, necessitating a decisive solution, and one from a forum that isn’t effectively controlled by the taxi industry. Three potential avenues are at our disposal: the FTC, state governments, or Congress. And they should be explored in that order.

It might seem odd to call for a federal agency like the FTC to take action in what appears to be a purely local issue. But not only does the FTC have the authority to take these cities to impartial federal courts and end their anticompetitive actions; it also has deep expertise in taxi markets and antitrust doctrines. By law, the FTC’s power to regulate “interstate commerce” is just as broad as Congress’, and that power is famously far-reaching, even covering the growing of plants at home for purely personal use. Here, as the agency noted in its 1984 cases against Minneapolis and New Orleans, the FTC could regulate local taxi markets merely because interstate travelers take taxis (and Ubers) to and from the airport when they fly across state lines. Moreover, Uber, SideCar, and Lyft are California-based technology companies competing in multiple states.

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