The DC Taxi Commission's Strange Case Against UberX

A blog about business and economics.
Aug. 21 2013 5:33 PM

The DC Taxi Commission's Strange Case Against UberX

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The Chooser Cruiser, a half cab/half police car.

Photo by KAREN BLEIER/AFP/Getty Images

I've been reading the DC Taxi Commission's case against UberX and it's mighty odd. The basic story is that while people like using Uber, Uber is quite expensive and Washington DC has relatively low taxi fares since historically we've done less than most cities to restrict entry into the taxi market.

So Uber wanted to launch a cheaper service to capture more of the market. That's UberX. You "hail" an UberX with a smartphone app the same way you hail a regular Uber. Using it, though, I've noticed two major differences. One is that the fares are much lower. The other is that (perhaps because the fares are much lower) there are many fewer UberX drivers. That's a basic problem of the marketplace. Customers are often overserved by full-sized luxury sedans and prefer to pay a lower price for a smaller car. But drivers value their time, and the lower prices charged for UberX seem to induce less supply. It would be interesting to see this play out over time in the marketplace. Would the earnings available at UberX eventually tempt more and more drivers into the marketplace? Or would the business fundamentally fail, since the market opportunity just isn't as good in DC as it is in other cities where cab fares are higher?

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But instead of finding out we got a Taxi Commission ruling that using small cars for this kind of app-based hailing should be illegal. The reasoning is as follows:

If some component of sedan services is permitted to use a taxi style vehicle at a rate less than a taxi, the likelihood is a diminishing of the number of taxis available for street hail and incursion by unregulated competitors who will begin to take street hails illegally. Enforcement will be difficult if not impossible. Further, as the demand rises, and taxicab service diminishes, the alternative vehicles will raise prices. The result is that passengers will be left with higher-priced services; visitors without smartphone could not use a street hail to obtain service and residents who do not use or cannot afford smartphones—including those in under-served areas of the city and the elderly—would be left with nothing. The Commission is charged with maintaining healthy competition in the public vehicles-for-hire industry, with preventing the destruction of a class of service long in business in the city, and for ensuring that all District residents have reasonable access to affordable public vehicle-for-hire service, not only individuals who can afford smartphones.

The argument here is that blocking UberX's entry into the marketplace helps low-income Washingtonians because it ensures that street hail taxis will be widely available, in contrast to a dystopian scenario in which only rich yuppies with smartphones can get a cab. The underlying presumption here that taxis are easy to hail on the street in poor neighborhoods strikes me as questionable—the cabs mostly seem to me to troll for customers in the rich yuppie districts where there are more people with money to burn on cab fare. But be that as it may, it's very hard to see how UberX could possibly reduce the availability of street hail cabs "in under-served areas of the city." If UberX proved wildly popular it might reduce the total number of cabs, but it would also change the taxi market to one in which it made more sense for cabs to locate themselves in currently under-served areas. After all, that's where the smartphone-free customers would be. Right?

The idea that preventing incumbent businesses from facing competition is a great way to help poor people just doesn't really pass the smell test. How about helping would-be UberX drivers make some money?

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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