Uber comes to Portland

Uber – the international ride-sharing company headquartered in California- has arrived in Maine.

The company announced on last week that its UberX service will available in the greater Portland area. “Between the awesome dining experiences, endless outdoor activities, and local microbreweries, we just couldn’t stay away,” reads a statement on Uber’s blog.  “Now, with the push of a button, Portlanders can request a convenient, safe, and affordable ride.”

The announcement comes after months of speculation, as Uber had been recruiting drivers via Facebook ads.  Uber claims that their fares will be 17% cheaper than taxis in Portland, with service offered as far west as Limerick, and as far north as Grey. As part of their launch, they are offering five free rides to all new customers.

The San Francisco based start-up began offering rides in 2010, and has since expanded to over 200 cities.  Uber operates via a smartphone app, which connects users to drivers.  The app shows the user to see all Uber vehicles in the area, approximate wait time, expected cost, and estimated time of arrival. The uberX service, which the company launched in 2012, offers a cheaper alternative to the more high end “SUV” and “Black” Uber services.

With the press of a button, users can request a driver and watch the driver make their way to pick them up through an in-app map.  Fares are paid with a credit card through the app, and there is no need to be hassled about how much to tip the driver, as a 20% gratuity is automatically added to the fare.

The Regulatory Factor

Uber has often faced heavy resistance from local authorities and taxi companies when entering a new municipality, as the cheap and efficient service eats into the revenues of local governments, who can charge exorbitant fees for taxi licenses, and a taxi industry accustomed to legal monopoly.

In June, D.C. taxi drivers led a massive protest against ridesharing services like Uber, blocking Pennsylvania Ave for hours.  D.C. taxi drivers complained that Uber drivers have an unfair advantage as they aren’t bound by as many regulations or fees.  The D.C. Cab Commission has proposed severe limitations on ridesharing services that compete with traditional taxis.  Similar actions to prevent Uber from expanding have been taken across the country.

In San Francisco where Uber originated, city officials have taken a different approach.  Since 2012 when Uber began offering their low-cost uberX service, monthly taxi rides in San Francisco have dropped by almost two thirds.  In a desperate attempt to compete, the San Francisco Municipal Transportation Agency has eliminated some fees for taxi driver licenses.  Instead of attempting to ban or stifle an innovative and beneficial company, San Francisco is eliminating burdensome and outdated barriers of entry in order to stay competitive.

“No optimal set of regulations related to ridesharing have been implemented,” said Matthew Feeney, a Policy Analyst for the Cato Institute. “Ideally, lawmakers and regulators would work on repealing existing taxi regulations rather than trying to impose taxi regulations on ridesharing companies or writing additional regulations explicitly for ridesharing.”

It is unclear which path Portland officials will take.

“Any time we have a new company coming to Portland, we think that’s great,” Jessica Grondin, spokeswoman for the City of Portland, told the Portland Press Herald. “But obviously the City Council will have to figure out where they fit into our city code.”

But Uber might not face animosity in Portland, as the city has relatively low fees for taxi driver licenses.  Fees paid to the city add up to at least $131 per driver.  Compare that to New York City, where taxi licenses — known as taxi medallions — fetch upwards of $1 million.

Uber drivers on the other hand, face no fees as they are not required to have a taxi driver license.  The only “fee” that Uber drivers must pay is a $100 deposit to Uber for a smartphone.

Uber drivers operate as independent contractors.  This means that they own their own vehicles and set their own hours, as opposed to taxi drivers, who typically rent vehicles from a taxi company and usually work in assigned 12-hour shifts.  The flexibility of the Uber system could be a huge draw for part-time drivers, who are unable to work the entire 12-hour shift allotted by a taxi company.

Disruptive Innovation

“It might be the case that the launch of UberX in Portland results in some taxi drivers losing their jobs,” said Feeney.  “However, I don’t think that the risk of an established market player being hurt by competition is a good enough reason to oppose competition. I also don’t think that UberX hurts communities, especially considering that most (if not all) of UberX drivers are from the areas where they operate. ”

Some fear that Uber’s success could lead to a monopoly.  At left-leaning Salon.com, Andrew Leonard writes, “What happens to labor — the Uber drivers — when they have no alternative but Uber? What happens when it rains and the surge-pricing spikes and there’s nowhere else to go?”

What Leonard fails to acknowledge is that the industry as been monopolized for years.  Taxis have operated almost without competition until recently, as huge conglomerates own most taxis and burdensome regulations prevent taxi companies from effectively adjusting their prices to market rates.

The way to defeat monopolies is not through over-regulation.  Over-regulation is what created the taxicab monopoly.  In order to break up the monopoly, we need to remove regulations that act as barriers to entry for innovative companies that challenge the status quo.  The only way that Uber could become a sustainable monopoly is if the government propped them up by using regulations and legislation to prevent competition, which is exactly what happened in the taxicab industry.  Without such regulation, Uber will face steady competition from other ridesharing services, like Lyft or Sidecar.

Avoiding the temptation to over regulate will allow competition and disruptive innovation to tear down monopolies and provide value to consumers.