The best of all monopoly profits is a quiet life. – Sir John Hicks
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A lot of people who are fans of free markets and technological innovation praise Uber as the poster child of market competition and ending crony monopolies like taxis. The ridesharing service promotes greater resource utilization and echoing the work of Hernando de Soto, brings a lot of dead capital to life, enabling low-income groups to become entrepreneurs in a world where regulation keeps them out. Even the Republican Party is trying to exploit the disruptive dynamism of Uber to claim themselves as “the party of Uber” (even if Uber has been saying things contrary to the GOP’s ideals). Contrast this to a lot of progressives who have made Uber their rallying call against unregulated markets. And yet, even economists widely agree (an unfortunate rarity), that on net, Uber is an improvement in people’s lives, for the obvious reasons.
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I have used Uber about a dozen or so times, and have never had anything short of a wonderful experience. The drivers were always courteous, and many times we have had conversations about Uber, the taxi-monopoly, and the state of technological improvement. It might be where I currently live, but these drivers were ethnically diverse, often second-generation immigrants from North Africa and the Middle East, and some commented about how Uber was substantially improving their even friends and family’s lives back in their home countries. I have even thought, on multiple occasions, of driving for Uber.
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Yet, even as the taxi monopoly is obviously trying to bring Uber down, in a some ways, Uber itself is bringing itself down. Or, at least, it is smearing the ideal that we really want it to be. It’s CEO has been saying a lot of shady things, prompting the media to say Uber has an “a-hole problem.” Uber has been dealing with a lot of criticism over the way it has been engaging with its rivals such as Lyft and Sidecar. It seems Uber allegedly uses a lot of shady tactics to make it more expensive for Lyft. Maybe these claims are overblown or even misrepresented, in hopes to benefit Uber’s rivals.
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None of this is to mention the cries of “price gouging” when Uber multiplies its rates during peak hours, and media attention given to horror stories of short trips with high bills. A friend of mine took an Uber on Halloween night about 10 miles for $250. While as a consumer in that situation I too might be irate, the greater principle of peak-load pricing is perfectly fine by me, it’s even socially beneficial. High prices signal information about relative scarcity, and induce new drivers to start offering their services. While you might save money by taking a cab in those situations, the “cost” you incur will instead be the hours waiting for that cab (if you can get one at all). And then there is the kicker, you can always chose not to take the Uber.
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But the most troubling developments about Uber is that it is starting to play the Taxi monopoly’s own game against its rival ride-sharing companies:
In September, though, the company hired former Barack Obama adviser David Plouffe specifically to work with local governments. “Uber should be regulated,” says Plouffe, who hails the legislation he hammered out in Washington, D.C. as “groundbreaking legislation [that] provides a model going forward.”
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That model is one that gives clear advantages to Uber, which has more market share and political clout than its rivals such as Lyft and Sidecar. What the legislation does is establish “burdensome new ridesharing regulations” dictating minimum ages of drivers and other requirements that will make it more difficult for competitors to catch up to Uber or enter new markets in the first place. (Time)
In the end, we must remember that Uber is a business, and the goal of every business is to become a monopoly. The reason Uber has been such a force for good is that it opened up the stagnant monopoly of the taxi cabs to one of convenience and innovation precisely because it stood as a rival competitor. The taxis were able to crush competitors because of the favorable regulation that they were able to co-opt from regulators.
Uber broke this very stable equilibrium because it was able to exploit technological progress in software to come up with a clever way to offer a more convenient service to consumers, and an equally clever way around the pro-taxi regulations: it’s not a taxi service, it’s just a software app that connects people who want to share rides that happens to be in exchange for money, and you cannot hail one from the street.
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But now that Uber has taken prominence over its own competitors, we should not at all be surprised that it would seek to use regulation to favor itself and make its rivals less competitive. Given favorable (but highly unlikely) circumstances, they would become the new taxi monopoly and we would be stuck back at square one. The only way to ensure consumer satisfaction and innovation is by the threat of rivalrous competition.
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Thus, as economists and advocates of free markets, we must remember to be vigilant of the abuses of individual businesses — we are pro-market, not pro-business. Only through open competition can we enable the wealth-creation that allows us to live the good life. Even the most innovative company will use free-market rhetoric just long enough to allow them to capture enough market share to start turning to the political process to switch from earning profits by creating value for consumers to collecting rents and deterring entrants.
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This is in no way a call to smear or boycott or prohibit Uber or ridesharing. We just have to realize that without reforming the capturable regulation itself, we risk our heroes becoming the villains once they are strong enough.