Competition is the fuel that fires the engine of the U.S. economy. Competition can take many forms, but the general outcome is almost always the same: Consumers are able to buy higher-quality goods and services at lower prices than they otherwise would.
Competition also creates powerful incentives to innovate. Sometimes that innovation can lead to incremental improvements in existing products. Other times, competition takes the form of “creative destruction,” whereby an innovator uses a new technology or business model to transform an industry. The personal computer, the Internet and the smartphone are all examples of technologies that led to creative destruction over the past few decades. Creative destruction nearly always benefits consumers, but it also frequently challenges or makes obsolete institutions wedded to the old ways of doing business.
A wave of creative destruction is now crashing down upon the taxicab industry. Until recently, a consumer hailed a cab on the street or telephoned a dispatch service and paid with cash. New smartphone applications such as Uber and Hailo are revolutionizing the industry by using GPS-enabled wireless devices to match consumers and drivers with the tap of a screen and a credit card payment. As is to be expected with any outbreak of creative destruction and innovation, consumers are reaping the benefits and entrenched interests are fighting back to suppress this new form of competition. The entrenched interests include not only taxicab drivers but the bodies that regulate them.
In recent months, the staff of the Federal Trade Commission has provided comments on proposed regulations by several local regulatory bodies in U.S. cities concerning new competition from Internet-based dispatch services. FTC staff has been critical of some of the proposed regulations, specifically those that make it more difficult for services such as Uber and Hailo to enter local markets without any countervailing justification that relates to consumer protection or consumer safety.
The D.C. Taxicab Commission has promulgated one such set of regulations, which attracted comment from the FTC staff. The FTC letter focuses on ensuring that consumers are protected from attempts to use the regulatory process to ward off new and innovative forms of competition. The letter observed that, in the taxi market, “competition takes place on a variety of dimensions, including price, availability, timeliness, convenience, quality, vehicle type, payment mechanism, and other amenities. A regulatory framework should enable these various kinds of competition and not directly or indirectly restrict the introduction or use of new types of applications or the novel features they may provide absent some significant evidence of public harm.”
The FTC letter also notes that, although some of the Taxicab Commission’s proposed regulations appear related to consumer protection and safety, others do not. The FTC letter criticizes the commission’s proposed regulation to require “sedan-class” vehicles — the vehicle class of choice for some new entrants — to be of a specific size and color because the regulation would prevent entrants from using smaller, more fuel-efficient vehicles. Indeed, it is difficult to imagine any benefit to consumers from depriving them of the choice to use a Web-based dispatch service.
In an Aug. 27 editorial, The Post also criticized the proposed regulations. The editorial made reference to the FTC letter, which Taxicab Commission chairman Ron Linton claimed Uber “had a hand in writing.” I can say without qualification that Linton’s comment is incorrect. At no point did Uber or any other company participate in any way in drafting the letter.
Linton’s uninformed comment tells us more about the commission’s approach to regulation than about the FTC’s. According to The Post, Linton described the commission’s regulatory role to that of a referee of competing interest groups. The appropriate referee for that competition is not the commission but consumers in the marketplace. Unlike the Taxicab Commission, the FTC does not weigh the interests of various groups in deciding to take action. The FTC serves the interest of only one group: consumers. And in the context of the taxicab industry, the FTC has long made clear through its advocacy efforts that local regulatory bodies should not stand in the way of companies like Uber that use new technology and new business methods to meet consumer demand unless there is the potential for substantial consumer harm.
History teaches that advocacy letters are not the only tools at the disposal of the FTC to protect consumers. This is not the first time the FTC has been critical of bodies that regulate the taxicab industry. In 1984, the FTC brought lawsuits against the cities of New Orleans and Minneapolis, alleging that these cities’ regulatory agents had unfairly combined with operators to impose regulations increasing taxi fares, limiting the number of taxi licenses and engaging in other methods of unfair competition. Thus far, the FTC’s approach to the current wave of regulation in the taxicab industry has been to send advocacy letters to the regulatory bodies. Linton’s comments suggest that perhaps the anticompetitive nature of the new taxi regulations should once again demand the FTC’s full attention.
The writer is a commissioner at the Federal Trade Commission. The views expressed are his own.