Reduce Regulation To Level the Playing Field with Taxis and Uber/Lyft/Sidecar

Technology regularly enables new business models and the business models of ridesharing companies are turning transportation into a commodity. Because of the significant economic advantages of those business models, no force will prevent this change, it's just a question of how they are managed legally.

In many cities, ridesharing companies (which I'll call TNCS, Transportation Network Companies) share another major advantage over traditional cab companies besides their business model: they circumvent the costly regulations placed on their incumbent competitors.

Traditional taxi companies in Madison and elsewhere are burdened with regulations that ensure they provide their service in a particular way. They are required to: provide service 24/7, over the entire city; not raise their prices without a considerable waiting period; and post their prices on their vehicles. These regulations help guarantee that taxis are generally available to anyone in the city. If that sounds like a public service it's because it is; taxi's are regulated in a way that forces their private companies to provide a public service for a predictable fee. And there is a significant cost to that. 

In TPC hearings and in copious public testimony, taxi companies in Madison talk about the costs they bear to make unprofitable trips, at unprofitable hours, on unprofitable days. And because they must at least break even if not be profitable, they are forced to pass their costs on to their customers. Apart from organizational efficiencies, TNCs are also able to charge much less because they don't need to bear these costs.

As we create laws to allow TNCs to responsibly operate, we should level the playing field not by placing those same regulations on TNCs, but instead by removing those regulations on taxis.

Why? Because the cost of providing that public service shouldn't be born by taxi customers, who are often over-represented by people in lower income brackets. Essentially, these regulations cause a regressive fee. 

Instead I propose the city do what it always does when it wants a service provided by a private company, it asks for bids for a contract. If the city offered a contract asking for a company to provide 24/7 taxi coverage of the entire city, any taxi company or TNC in Madison could determine how little they would need to profitably satisfy the contract, then bid their price. The city would select whichever company could satisfy the contract most cheaply, then secure that service for the public for that time period. Currently there are 4 companies that must provide that service and pass the cost on to consumers. With this contract there would be only one (which would be compensated for it and not need to raise prices) and the other 3 could each save considerable money that they wouldn't need to pass on to the consumer.

The result would be cheaper taxi service for the city, TNCs operating on a level playing field with cabs, and the city (and taxpayers) knowing and paying the cost of a service it ostensibly wants. 

Plus, it's entirely possible that the cost to provide that full service citywide is very low. We may well have enough demand at all hours of the year across enough of the city that there is little marginal cost associated with maintaining that service, in which case the bids the city will receive and its expense will be low.

I propose we start moving in this direction immediately by putting a sunset clause in the pending TNC legislation that would eliminate these public-service regulations starting Jan 1 of 2016. Then, in the intervening 9 months the city will have ample time to put together a Request for Proposals, receive, vet, and grant a winning bid.

Lastly, I propose we scrap the fixed fee, and let the market dictate costs. With a market that can float, particularly as it will be unmoored by the cost of maintaining previous regulation, we will generally have a more competitive and cheaper market that will allow supply to better stretch to meet demand, insuring that surge pricing never gets too outlandish. Further, the suggestion that we have either surge pricing or a fixed fee is false. The question is actually whether we want fixed fees and occasional periods without service, or fluctuating competitive fees and occasional periods of high prices. I think having a high priced option is always superior to having no option.

If these changes are put into practice it will save Madisonians money, improve our business competitiveness, and help show that we are open to new technology, not hostile to the change they bring.