Making a market for shared mobility services

Yesterday, we urged cities to think hard about how they can craft the rules for the transportation network companies that offer “ride sharing” systems to maximize competition, and encourage innovation and low prices.  “Let a thousand Ubers bloom,” we said.

The rules and regulations that cities set for ride sharing — everything from taxes, to accessibility requirements, to safety measures (like fingerprinting drivers) — can have an impact on whether ride sharing ultimately becomes an effective monopoly or cozy duopoly that is profitable for firms but offers limited choices for riders, or whether there’s an open system where new entrants can continually be as disruptive to incumbents as Uber and Lyft currently are to inefficient taxi systems.

Here’s our initial list of things cities should be considering to encourage a competitive, dynamic marketplace for ride sharing services.

1. Assure ride sharing information is open and accessible. Ride share operators make their money using a scarce and expensive public asset: streets. They should be required to provide information about the trips they take, the areas they serve, and the fares they charge so that the public can understand how ridesharing affects the community—for good and for ill. Disclosing information on fares and service can also encourage competition, enabling comparisons between cities to see if consumers are getting a good deal. It can also provide a basis for deterring anti-competitive practices, like price discrimination. Boston and San Francisco have negotiated agreements with Uber to provide data on trip origins and destinations.
2. Set some basic ground rules, including certification for drivers. If there are some minimal standards that assure rider safety and transparent information and pricing, consumers may be more willing to try smaller and newer firms. One possible reason that Uber and Lyft opposed fingerprinting drivers was that it diluted the value of their brand reputation by leveling the playing field, assuring that all persons using a ride sharing service were driven by similarly vetted drivers.
3. Encourage bidding for travel. We’re all used to using services like Kayak to shop for the best airfares or bidding on eBay in real time auctions. Uber and Lyft act as price-setters, dictating a single price for trips, regardless of who’s traveling or who’s providing the ride. They then allocate drivers to riders and riders to drivers. It’s possible to imagine a more free-wheeling auction system, where riders could bid for trips, and drivers could compete to provide service. Such services might help make it easier for smaller rivals to break into the market, and would give customers more leverage.
4. Don’t inadvertently privilege large size with regulatory set ups. Virtually any regulatory requirement will impose a higher burden on small firms and startups than on larger, established businesses.  For example, requirements that all ride share operators offer a certain number or proportion of wheelchair-accessible vehicles. A provision that assesses a fee to cover the cost of these services—or gives operators the option of paying a fee in lieu of equipping vehicles, would lower the barriers to entry.
5. Insist on multiple options when integrating ride sharing with public transit. It’s increasingly apparent that ride sharing services could be a logical complement to fixed route transit in lower density locations and during off peak hours.  Transit operators should resist the temptation to enter into exclusive deals with a single ride share provider. Public transit is, in most places, a monopoly—but it’s under public control, and subject to a fair degree of scrutiny.
6. Restrict or prohibit fare and driver compensation schemes that lock users into a single service. In Boston, Uber is offering 1 cent rides on UberPool—provided you buy a $40 monthly pass. While undoubtedly a money loser, this UberPool pricing model effectively discourages those who sign up from using alternative providers. Similarly, Uber and Lyft frequently offer much more favorable compensation to drivers who drive full time for only one service or the other: again, the idea being to lock drivers into one service, and reduce their competitors’ market share. If drivers truly operate as “independent contractors,” they should be free to secure business through any network, and to set their own prices.

Recently, we profiled Paul Romer, who has just been appointed as the Chief Economist for the World Bank.  One of the key insights of his New Growth Theory is that we ought to be open to a range of different institutional set-ups in order to encourage experimentation and promote economic growth.  That’s exactly the attitude we ought to bring to ride sharing.  Having different cities around the country develop various ways of regulating this industry is likely to prompt a range of different business models and a faster pace of innovation.

While hardly an exhaustive list, these six ideas illustrate the important ways that setting the rules of the game for the ride sharing industry are likely to influence competition, innovation and customer choice.  Ride sharing and urban transportation are evolving quickly; we should aim to build on this momentum.