Chillin'Competition

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Uber and Transport for London: a case study in regulatory behaviour

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My admittedly modest resolution for 2016 was to read (at last!) Transport for London’s proposals for the regulation of the private hire sector (aka the Uber proposals). Uber is an immensely popular service that works lawfully, and in the interest of consumers, in London. It is affordable, reliable, and works around the clock.

I genuinely thought that, at least as far as London is concerned, there was no way back. I know it is immensely difficult to change regulation to allow a disruptive service. And I appreciate that managing change is even more difficult. But once the service is lawfully up and running, as Uber is London, I did not think that regulators would try to re-regulate a service to penalise consumers.

Having read TfL’s proposals, I realise that I may have underestimated the power of regulators to adopt rules that harm users for no compelling reason. In this sense, these proposals are a useful case study on the behaviour of regulators and possibly a template of what the current obsession with the regulation of ‘platforms’ (whatever that means) may bring about in the near future.

The most controversial proposals advanced by TfL are the following:

  • ‘Operators must provide booking confirmation details to the passenger at least five minutes prior to the journey commencing’. In other words, it is necessary to wait five minutes before getting on a car. What if there happens to be an Uber car around the corner? The rule would still apply. The alleged rationale for the five-minute rule is that it would ‘reduce the risk of a customer getting into the wrong car and/or into an unlicensed vehicle’. Really.
  • ‘Operators must offer a facility to pre-book up to seven days in advance’. TfL believes that ‘increasing absence of advance booking facilities will restrict the choice for passengers’ and therefore that it should require all operators to provide this service. This says much about how regulators see competition. TfL does not expect competition to bring about the services that consumers want and value. It is for the regulator to do that.
  • ‘Operators must not show vehicles being available for immediate hire, either visibly or virtually via an app’. This proposal seeks to prohibit one of Uber’s most interesting features. The application displays the cars that are in the vicinity and allows users to see where the car is any time. Apparently, this feature creates ‘the impression of vehicles being available for immediate hire’. And apparently, this is a bad thing.
  • ‘Operators must specify the fare prior to the booking being accepted’. Something strange must be going on in this city. For some reason, consumers use (massively and enthusiastically) Uber without knowing exactly how much the trip will cost.

The picture that emerges from the above is clear. TfL ostensibly intends to create a level playing field. But it seeks to do so in the wrong way. Instead of changing the regulatory regime with consumers’ interests in mind, it seeks to eliminate some of the competitive advantages of new entrants to protect incumbents (including cabs and large minicab companies).

We have seen this story many times before. My favourite example is that of cable television in the US (here is a great article about it). For years, the FCC prevented the growth of cable systems (which have transformed television, for good and for the better, around the world) simply to protect incumbent broadcasters.

This discussion begs two questions, and I would love to read your views on them. One is whether good regulation is the exception rather than the rule.

The second is whether, paradoxically, good regulation tends to be treated more harshly than dubious initiatives. Right before Christmas Day, the ECJ ruled on Scottish legislation setting a minimum price per unit of alcohol. This is an example of government regulation at its best. It seeks to address a serious concern in a way that is sensible and proportionate. Alas, there is no guarantee that the regime will be upheld after the preliminary ruling.

 

Written by Pablo Ibanez Colomo

6 January 2016 at 3:11 pm

Posted in Uncategorized

12 Responses

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  1. Free markets allow us to “phished” for “phools”, to use the lingo of a recent economics bestseller, but politicians (and their regulators) are phishermen of citizens and phools for businesses too!

    Jan Blockx

    6 January 2016 at 3:40 pm

  2. I’ve been fascinated by the minimum alcohol pricing case for a long time, ever since, in 2013, the court of session tested it not only against EU law (and found it OK) but also against the Act of Union’s command that there must be free trade between England and Scotland. My views on the ECJ’s judgement are probably better discussed over a good pint someday.

    As for TfL, I haven’t studied the legal situation in detail, or read the condoc, but I suspect that part of the difficulty is the underlying statutory framework. From your post, it looks like TfL wants to force Uber cars to be more like minicabs. That could be because it has determined that, if Uber is offering taxi services (and it is), legally it either has to be as a black cab or as a minicab, because those are the only two types of taxi allowed by statute. If that is the case, it’s not TfL’s fault that its proposals don’t seem to fully accommodate Uber’s business model.

    You might want to look at the October High Court judgement on whether Uber drivers need to have taxi meters. From the procedural posture of that case, I did not get the impression that TfL is fundamentally hostile to innovation. https://www.judiciary.gov.uk/wp-content/uploads/2015/10/tfl_-v_uber-final_approved-2.pdf

    Martin Holterman

    6 January 2016 at 3:46 pm

  3. Hi Martin,

    As usual, thanks a lot for your comments!

    On TfL: I would agree with you if we were debating whether TfL should adapt the regulatory framework to accommodate Uber. But this is not what is going on here. Uber is already operating in London, as you know. The debate is thus whether the regulatory framework in place should be amended in a way that makes Uber’s life much more difficult.

    My point of view, as you see, is that there seems to be no compelling justification for the proposals (the CMA advanced a similar viewpoint). It is difficult to avoid the impression that the protection of incumbents (as opposed to consumers’ interest) drive these proposals.

    About Uber providing taxi services: I think the High Court is unambiguous in this regard.

    I do not think TfL is fundamentally hostile to innovation. I do not believe the FCC was fundamentally hostile to innovation either in relation to cable systems.

    On Scotland and minimum prices: I would not say I am fascinated, but I will definitely write more about it on the blog.

    Pablo Ibanez Colomo

    7 January 2016 at 1:20 pm

  4. Dear Prof. Ibanez Colomo, thank you for your very interesting post. I would not go into the details of the TfL proposals, that I haven’t read yet. I would just like to better understand the sentence, at the beginning of the article, “once the service is lawfully up and running, as Uber is London, I did not think that regulators would try to re-regulate a service to penalise consumers”. I hope that this must not brought to the extreme conclusion that once a service is active in a market, it is too late to be regulated. If this was the case, it would be confirmed the concern that some platforms, and particularly Uber, “have prioritized popularity over profit in order to grow, and they believe if the sharing economy gets big enough quick enough, the political price will become too high for any elected official to try to stop it” (see this draft article on http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2535656 , quoting in its turn Wired’s article “Uber’s Brilliant Strategy to Make Itself Too Big to Ban”). My remark is obviously provocative (and I beg your pardon for its predictability), but is clear that a service, just because is active in the market, is not necessarily welfare enhancing for consumers and society as a whole: and Uber, while providing major benefits for consumers (it contributes to fix problems of scarce availability of cabs in peak hours, to say), also poses major challenges of unfair competition to competing, and highly regulated services, such as taxi drivers (some of which had the chance to offer this service only after hard training and payment of expensive licenses). Again an obvious remark, I think it is important to regulate (if needed) a service, provided that this is done in a pro-consumer way, and not just for the sake of protecting incumbents.

    E. Di Tomaso

    11 January 2016 at 11:29 am

  5. Thanks very much for your comment, E.!

    I am not claiming that private hire vehicles should not be regulated. I am not saying that once a service is up and running it is too late to regulate it.

    My sentence reads: “once the service is LAWFULLY up and running, as Uber is London, I did not think that regulators would try to re-regulate a service TO PENALISE CONSUMERS”

    What ‘lawfully’ implies is that Uber is complying with the existing regulatory framework. It has recently been ruled that it does not make use of a taximeter. In addition, it holds a licence to operate private hire services (you can check by yourself these facts). As a result, it cannot be argued that it is competing ‘unfairly’. The legislator has created a framework that allows Uber to lawfully operate in London. How can that be ‘unfair’ then?

    I am not discussing just any form of regulation. I am discussing regulation that penalises consumers for no compelling reason. I can think of valid reasons to regulate the sector. The point of the sentence, and of the post in general, is that the proposals I discuss not only lack justification but also harm consumers. TfL argues that these proposals are intended to protect consumer safety. I do not think this is credible.

    Pablo Ibanez Colomo

    11 January 2016 at 2:55 pm

  6. Thank you for the clarification Pablo.

    A regulation, when necessary, should obviously be pro-consumers and I agree that the proposals advanced by TfL (at least the ones highlighted in your post) do not appear to be as such.

    Enrico Di Tomaso

    12 January 2016 at 2:55 pm

  7. For those interested in further discussion, we organize a half day event on the peer 2 peer economy and EU law in Brussels : http://www.brusselsschoolofcompetition.be/events/16Half-Day-Conference-THE-UBER-ECONOMY-COMPETITION-IN-AND-FOR-THE-MARKET

    If you want to know more, dont hesitate to send me an email.

    Nicolas

    Nicolas Petit

    15 January 2016 at 4:30 pm

  8. For information, today the UK government published its consultation response on the Commission’s digital platforms consultation. It advocates the use of competition powers rather than regulation.

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/491736/bis-16-74-digital-platforms-eu-consultation-response.pdf

    Martin Holterman

    15 January 2016 at 6:28 pm

  9. […] time I wrote on Uber, I mentioned the recent ECJ ruling on Scottish legislation setting a minimum price per unit of […]

  10. […] announce in the blog, before it is too late, that Transport for London has dropped the proposals I discussed at the beginning of last month. No doubt, TfL realised that they were […]

  11. […] Kenya — does not always prevail (again, see the occidental examples of Brussels, Hamburg, London, or even Baltimore, where the cabbies ironically sued Uber in an antitrust lawsuit, alleging that […]

  12. […] Uber and Transport for London: a case study in regulatory behaviour My admittedly modest resolution for 2016 was to read (at last!) Transport for London’s proposals for the regulation of the private hire sector (aka the Uber proposals). Uber is an immensely popular service that workslawfully, and in the interest of consumers, in London. Alfonso Lamadrid de Pablo & Pablo Ibáñez Colomo  (Chillin’ Competition) […]


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