Honolulu, Hawaii Ridesharing Price Control Ordinance Vetoed

Published July 11, 2018

Honolulu, Hawaii Mayor Kirk Caldwell rejected a proposed ordinance that would regulate fares charged by Uber, Lyft, and other ridesharing companies.

The Honolulu City Council approved the ordinance, Bill 35, on June 6, sending the legislation to the mayor to approve or reject. Caldwell vetoed the ordinance on June 17.

The City Council has until July 19 to decide whether to override the veto or allow the rejection to stand.

If six council members vote to override the veto, the ordinance will take effect, putting the City Department of Customer Services in charge of determining price ceilings for fares drivers may charge during high-demand periods of time, known as “surge pricing,” when picking up passengers in Honolulu.

Calls for Price Flexibility

Adam Smith, an associate professor of economics at Johnson & Wales University and a policy advisor for The Heartland Institute, which publishes Budget & Tax News, says government intervention distorts local transportation markets, raising prices and reducing access.

“A lot of things that are done through companies, like transportation, are now done through markets directly,” Smith said. “Having people contracting with people, you obviously need to allow the price to move around to be able to let those markets clear. When you don’t, or you put an arbitrary cap on price, then you’re going to have a shortage of that market. Fewer suppliers are going to meet demand, and they’re going to not meet demand in times when you most want it.”

Consumers First

Keli’i Akina, president of the Grassroot Institute of Hawaii, says market principles put people in the driver’s seat.

“When prices rise, more ride-hailing drivers are incentivized to help customers,” Akina said. “This market mechanism helps give more power to consumers. Customers can already see the higher price beforehand, and they can decide to accept or decline the ride. In this way, the consumer is king.”

“Putting a cap on surge pricing would cut off choices for consumers,” Akina said. “The high price is a signal to ride-hailing drivers that their services are urgently needed. This can help inspire more drivers onto the road to help customers.”

Predicts Supply Reduction

If the City Council overrides the veto and the ordinance takes effect, the supply of transportation in the city will decrease, Smith says.

“My prediction would be that there will be fewer rides available,” Smith said. “They think they’re just going to reduce the price but keep the quantity the same, but that’s not how the market works. You’re also going to reduce the amount of suppliers available. I think this is just going to be a reduction of mass transportation in Honolulu.”

Suggests Regulatory Reduction

Instead of making more regulations, the Honolulu City Council should consider reducing the regulatory burden on transportation providers, Akina says.

“Instead of putting more restrictions on ride-hailing customers, Hawaii should explore ways to relieve taxi drivers of over-burdensome regulations,” Akina said.