What a terrible idea: deregulating taxi fares in DC for mobile-based hails

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Originally posted on April 7th, but significantly revised and reposted on April 8th
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See the press release "Grosso and Cheh introduce legislation deregulating fares for taxis dispatched through mobile applications." From the press release:

Last Friday, Councilmember David Grosso (I-At Large) and Councilmember Mary Cheh (D-Ward 3), Chair of the Committee on Transportation & the Environment introduced legislation that makes significant enhancements in safety and consumer protections for mobile dispatch and ridersharing services passengers by mandating them to (1) perform background checks on their drivers; (2) maintain commercial insurance for drivers; and (3) establish and maintain zero-tolerance policies for drugs and alcohol. Additionally, the legislation seeks to enhance fair and equitable competition between Transportation Network Applications Companies (e.g. Lyft and Sidecar), mobile-dispatch services (e.g. Uber and Hailo), and taxicabs by deregulating the fares for taxicabs dispatched through mobile applications.

-- B20-0753: "TRANSPORTATION NETWORK SERVICES INNOVATION ACT OF 2014"
-- past blog entry, App based ride services and creative destruction and plain old destruction
--  past blog entry, Misunderstanding Uber, Taxi regulation and what we might call the "Overground Economy
-- past blog entry, Taxi fares in DC and not planning
-- past blog entry, DC and taxis: need for a comprehensive plan
-- past blog entry, Taxis

Apparently the main impact is to legalize "surge pricing," the Uber practice which raises prices to 6-8 times greater than the standard rate, in times of high market demand.  See "Proposal would allow DC cabs to embrace 'surge pricing'" from the Washington Post.

I think this is a terrible idea for many reasons.

Mobile dispatch services aren't fundamentally different from other types of hails.  Despite all the blather, getting a taxi by using a mobile phone isn't a significantly different process from using a land-line telephone or accessing a webpage by desktop, laptop, or tablet computer.  It doesn't justify offering a deregulated service.  Riders (consumers) deserve the normal common carrier regulatory protections afforded to consumers that come from regulation.

What can be different is the type of car and quality of the service as "car service" is often an upgraded service compared to traditional taxis.  The biggest thing that services like Uber illustrate is that there is room for two types of taxi service, regular and premium.  Traditionally, "black car" or livery services have been available in cities as an upgraded service compared to traditional taxis.

In New York City, taxis aren't dispatched in response to calls, they are exclusively obtained through street hails.  Livery cabs were a response for people who wanted the security of calling for "car service" for a specific trip.  (Now livery cabs can be dispatched through a "street hail" but only at specific livery cab stands.)

Services like Uber "democratize" the availability of upscale taxi or livery services.

The proposal creates unequitable competition not equitable competition: if you're going to deregulate, deregulate everything.  Allowing one form of taxi service to charge a lot more (or theoretically, less) doesn't create an equal playing field, it preferences the under-regulated service. Since taxi companies have to meet the same requirements--insurance, background checks on drivers, etc.--why not just deregulate all the services?  I don't agree with that position, but I don't see any justification for a portion of "taxi and dispatch services" being regulated and another portion being unregulated.

Uber pricing can appear to be arbitrary.   The biggest problem with Uber now is that trip pricing appears arbitrary and capricious both for regular fares (see "The Uber Hangover: That Bar Tab Might Not Be the Only Thing You’ll Regret in the Morning" from New York Magazine) and in times of high market demand, when Uber imposes what they call "surge pricing" which they justify as an inducement for drivers to work. 

From the New York Magazine article "Here’s How Uber Should Fix Its Surge Pricing Problem":

Over the weekend, it snowed in New York, and a lot of New Yorkers tried to take Uber cars home from their night activities. Those New Yorkers got upset when the Uber cars cost seven or eight times as much as normal, because of the company's dynamic "surge pricing" scheme, whereby it gets more drivers to come out on the road during busy times by making rides much more expensive.

What is the justification for stratospheric pricing of rates as much as 8 times normal pricing?  I don't think there is any, other than allowing people to spend money conspicuously (also see "limo surfing").  Note that The Economist Magazine disagrees, see "Free exchange: Pricing the surge," suggesting some changes to how Uber charges drivers, but mostly favoring the idea of surge pricing despite critics like me complaining about price discrimination.

On the other hand, allowing surcharges for high demand evenings like New Year's Eve could be worth considering more generally (for regular taxes too).

Solution One: set up a separate set of regulations.  NYC doesn't deregulate livery cabs, in fact they have an extensive set of regulations governing their service and operation (rules page, NYC Taxi and Limousine Commission).  DC should be no different.

Solution Two: set up separate rate tiers.   In NYC, for taxis there are four rate tiers for taxi  service: regular; service to LaGuardia, JFK, and Newark International Airports; and service to Westchester and Nassauc counties.  Rather than deregulate rates for mobile dispatch services, create a separate rate tier for livery cabs, and an additional rate tier for times of high market demand.

This is one more example of needing a taxi and ridesharing element within a master transportation plan.  Councilmembers come up with a lot of crazy a** proposals.  Some of that could be reduced--although they'd be likely to ignore recommendations--by having a transportation master plan.

Other forms of taxi service innovation are more important and are being neglected.  The biggest dearth of service occurs in the outlying part of the city and the poorer neighborhoods.  Uber and similar services are mostly for higher income riders, but can be expected to improve service coverage in the outer city somewhat. 

Ridesharing programs like Lyft or Sidecar do allow for the shifting of some types of underground economy activities to what I called the overground economy, but the people offering gypsy cab services in poor neighborhoods aren't likely to be inclined "to go legit."

Other forms of innovation include shared taxis or jitneys ("The (Illegal) Private Bus System That Works," Atlantic Cities; "Ending the Jitney Menace," Newark Star-Ledger).  Such innovations aren't being pursued at the moment.

NYC's Boro Taxi as an initiative to expand service in underserved areas.  To add service to the city outside of Manhattan's core, New York City added a "second class" of taxi service called "Boro Taxis," that operate primarily in the boroughs outside of Manhattan, although they can also pick up riders north of 110th Street in Manhattan.  (Mostly this was a conversion of livery cabs.)

These taxis are colored green, as opposed to the standard yellow of the traditional medallion taxis, which can pick up a fare anywhere in NYC, but tend to operate in Manhattan and certain parts of Brooklyn and to a lesser extant Queens.

The Boro taxis can't pick up fares at the airports or in the "Manhattan exclusionary zone" south of 110th Street.

-- "With Street-Hail Service Set to Expand, Some Drivers Are Skeptical," New York Times
-- Boro Taxi Market Study, NYC Taxi & Limousine Commission

Cab sharing.  When DC cabs were on the zone system, drivers used to be allowed to pick up multiple unrelated fares along the way.  When the traditional meter system was introduced, this was disallowed and is the biggest reason why taxi cab driver income is down.

Cab sharing is also a better use of scarce resources.   NYC allows cab sharing only from a few specific points (such as LaGuardia Airport).  Reinstituting the legality of cab sharing can increase driver income and increase service to underserved areas.