Seattle City Council’s Taxi & Rideshare plan stifles innovation

December 18, 2013

The Seattle City Council’s Taxi, For Hire, and Limousine Committee recently unveiled draft plans for a two year rideshare pilot program to regulate the spate of new companies that offer citizens an alternative to driving and traditional taxi services. The city’s proposal, echoing century-old regulations on taxicabs, stifles innovation and unfairly picks winners and losers. If this plan is adopted, ridesharing companies such as Uber, Lyft, and Sidecar (called Transportation Network Companies or TNCs by the Council), would be forced to drastically reduce fleet size and increase prices to consumers.

Taxi and For-Hire companies own a city and county granted monopoly to pick people up and drop them off. City and County ordinances restrict new entrants into the industry by heavily regulating the number of taxi and for hire vehicles in operation. Artificial barriers to entry allow the taxi industry to operate outside of a competitive market.

The taxi industry claims that TNCs are operating within the monopolistic industry hand carved by local officials. Taxi boosters want to unfairly burden TNCs to force customers to use cabs instead.

Their fears of losing market share are probably correct. Old-style taxi operations have failed to meet increased customer demand for new services and options. Instead of embracing TNCs innovative use of technology and services to increase their customer base, the taxi industry has relied on the monopoly granted them by government officials to maintain market share.

To maintain the strict government oversight of the industry, the City Council has proposed imposing the following regulations on TNCs/rideshare companies:

  • $50,000 annual business license in year one of the pilot program. $50,000 or .35% of revenue in year two, whichever is higher.
  • Maximum of 100 vehicles per company
  • Many drivers would only be able to work 16-hours per week
  • Other regulations such as vehicle inspections, high insurance requirements, etc.

Under such a regulatory scheme, TNCs would have little access to their own market. With only 100 vehicles per TNC, and many drivers only able to drive 16 hours per week, this is a classic example of how regulation favors the politically well connected and big business. Large companies benefit from regulations that squeeze their smaller competitors out of the market, while consumers have fewer choices and face higher costs.

Including rideshare companies in century-old regulation is bad policy, but imposing even more unfair regulation on ridesharing is worse.

Reasonable regulations, such as insurance requirements, driver license requirements, and others, are understandable.

Policymakers should seek to level the playing field, by eliminating burdensome regulations on the entire taxi and rideshare industry, ensuring that consumers receive the services they demand at a fair price and of high quality.



No innovative about cutting corners

It is misleading to say that TNC drivers are limited to 16 hours a week under the city's proposal. If they get the same For Hire licenses that cab drivers must carry, they can work as many hours as they want. The TNC license is cheaper than the For Hire licenses and it was proposed as a favor to the part time drivers.

The TNCs are dispatching private cars to pick up passengers. Most of these vehicles are insured by non-commercial policies which exclude using the automobile for a taxi business. As a result, the TNC drivers are hiding their business activity from their insurer because otherwise their policies would be cancelled and any claims that are submitted would be denied. This is the insurance fraud that is at the heart of this "innovative" business.