Can the FTC Stop Taxi Commissions From Crushing Uber?

What's to come?
March 12 2013 12:15 PM

Can the FTC Save Uber?

Taxi commissions are crushing disruptive transportation apps.

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The FTC’s general antitrust authority, however, only sometimes outranks city authority. Under the Constitution, federal law trumps both state and city law. But antitrust law allows states some exceptional leeway to adopt anticompetitive business regulations, out of respect for states’ rights to regulate business. This federal respect for states rights does not extend to cities—they are subject to the antitrust laws unless states pass legislation absolving them. For example, Minneapolis ended up avoiding the 1984 lawsuit by acceding to the FTC and permitting more competition. New Orleans did something different: It succeeded in lobbying the state of Louisiana to authorize its anticompetitive actions, to the detriment of consumers.

Some states, including Florida, Nevada, and Texas, could argue that like Louisiana, their laws currently authorize the city governments to undermine competition in their taxi markets. Nonetheless, the FTC should test the law in these states with litigation, as the Supreme Court’s position is unsettled. Under the few Supreme Court decisions spanning the past several decades, cities can engage in anticompetitive acts only when the state legislature “clearly articulated” and “affirmatively expressed” a state policy to displace competition and replace it with an uncompetitive market. To complicate matters, the court “disfavors” interpretations of state law that permit anticompetitive city regulation, yet it still permits city anticompetitive action even it is merely a “foreseeable result” of the state law. Put all this together and the FTC can likely argue that state taxi authorizations do not foresee anticompetitive restrictions on apps like Uber and services that permit average citizens to tip one another for a ride. At the very least, Washington, D.C., is not in a state, so no state law can protect it from the FTC’s antitrust powers.

But if the FTC was unable to secure a court victory against a particular state, that state’s government could intervene. States are probably not as beholden to the taxicab industry as are local taxi commissions. Their legislatures or agencies could easily either pull back any specific authority they’ve granted to city governments, or clarify that those powers are not so broad as to block communications technologies that connect users to black car drivers or to one another. Indeed, states might feel pressure to do so, lest they appear either supportive of anticompetitive policies in their cities or powerless to change those policies.

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Should the FTC or states not rise to the task, Congress can preempt all of the problematic state and city statutes by passing a one-sentence law. There is precedent for such action. For example, with respect to mobile phones, Congress declared in 1996 that “no State or local government shall have any authority to regulate the entry of or the rates charged by any” mobile phone company. The same can and should apply to taxicab services. This solution should be politically feasible: Both Republicans and Democrats can agree that more choices and lower prices in transportation would benefit consumers. Democrats would consider it “smart government” and Republicans “limited government.”

While taxi companies might prefer not to face competition, they deserve no more protection from it than did horse-and-buggy salesmen in 1905 or MySpace in 2005. Like Uber, Sidecar, and Lyft, they deserve no more and no less than a fair shot in a competitive market. The FTC, states, or Congress itself should step in to make that possible, lest city governments run competitors off the road.

This article arises from Future Tense, a collaboration among Arizona State University, the New America Foundation, and Slate. Future Tense explores the ways emerging technologies affect society, policy, and culture. To read more, visit the Future Tense blog and the Future Tense home page. You can also follow us on Twitter.

Marvin Ammori is a Future Tense fellow at New America, a practicing lawyer, and a visiting scholar at Stanford Law School’s Center for Internet Society.