Thursday, December 24, 2015

Market making and law breaking: Ben Edelman considers Uber et al.

Ben Edelman considers the many efficiencies that Transportation Network Companies (TNCs) like Uber provide, but also notes that they may be shifting costs to the public as they disregard laws and regulations regarding commercial drivers:
Whither Uber?: Competitive Dynamics in Transportation Networks
Benjamin Edelman — November 2015, forthcoming, Competition Policy International

"But what about the myriad other requirements the legal system imposes on commercial drivers?
Consider: In most jurisdictions, a “for hire” livery driver needs a commercial driver’s license, a background check and criminal records check, and a vehicle with commercial plates, which often means a more detailed and/or more frequent inspection. Using ordinary drivers in noncommercial vehicles, TNCs skip most of these requirements, and where they take such steps (such as some efforts towards a background check), they do importantly less than what is required for other commercial drivers (as discussed further below). One might reasonably ask whether the standard commercial requirements in fact increase safety or advance other important policy objectives. On one hand, detailed and frequent vehicle inspections seem bound to help, and seem reasonable for vehicles in more frequent use. TNCs typically counter that such requirements are unduly burdensome, especially for casual drivers who may provide just a few hours of commercial activity per month. Nonetheless, applicable legal rules offer no “de minimis” exception and little support for TNCs’ position."

See also
Efficiencies and Regulatory Shortcuts: How Should We Regulate Companies like Airbnb and Uber?
by Benjamin G. Edelman and Damien Geradin

I was recently in Toronto, when taxi drivers blocked some intersections to protest what they saw as lack of law enforcement regarding Uber, and earlier I was in Vancouver, where Uber was no longer operating, after a brief foray into that market.

On the other hand, it's clear that Uber is providing services that are being eagerly consumed by a public that hasn't been adequately served by existing taxis and delivery services. (In Toronto, one colleague told me that when he goes to the business school cafeteria and sees a long line, he can order lunch from UberEATS and walk out to the street to pick it up faster than if he waited on the cafeteria line...)

Similarly for Airbnb (see this earlier post): while some hosts may be in violation of local laws, Airbnb is serving (and creating) a big market.

So, things are in flux: we'll see new regulations, that will presumably reach a compromise between serving these new markets while constraining and shaping them.

If you teach in a Business school, how should you advise your entrepreneurial students about market making and law breaking?

When I was recently in Russia, I gave a talk that touched on some of this, about markets as a source of sometimes disorderly growth, called "Markets, businesses, and governments: a complicated triangle."

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