Uber, the smartphone-driven “ride-share” company, launched its UberX service in Philadelphia in late October, prompting a regulatory crackdown by the city’s transportation enforcement agency.
Uber Black, Uber’s luxury-level ridesharing program, was barred from the city until Uber agreed to comply with Philadelphia’s licensing and supply restrictions. Unlike Uber Black, a popular option for already licensed cabbies, UberX drivers use their personal vehicles.
The Philadelphia Parking Authority (PPA), tasked with regulating all cabs and limousines in the city, enforced city regulations against “unauthorized service providers,” classifying UberX as an illegal taxi operation.
Artificial Scarcity
In Philadelphia, 1,600 taxicab medallions—licenses to operate a taxicab distributed to cab operators— are distributed to the city’s twelve taxicab companies by the PPA, an agency whose regulatory power has been expanded at the expense of other agencies.
In 1982, the Pennsylvania legislature took power from the city’s Street and Revenue departments to enhance PPA’s parking and street regulation efforts. Other law enforcement powers gifted to the agency include the authority to impound vehicles and issue tickets.
State lawmakers expanded the agency’s authority again in 2004, authorizing it to regulate all taxicabs and limousines operating in the city.
Undercover Stings
Contradicting the agency’s stated mission of providing “an efficient, well-organized transportation system that serves the needs of the public and encourages economic development,” PPA began conducting undercover sting operations against UberX drivers on October 26, responding to the company’s announcement of UberX services within the city.
As reported by Philadelphia Magazine senior reporter Victor Fiorillo, PPA officials promised to seize individuals’ cars as a response to UberX’s expansion into the area, vowing to “take the vehicle off the streets” and “impound the vehicle” being used.
During a 2013 wave of sting operations against Uber competitor SideCar, PPA officials told Fiorillo such companies “have absolutely no authority to operate here. They have nothing.”
Johnson and Wales University assistant professor Adam C. Smith criticized Philadelphia’s sting operations as “obvious rent-seeking, pure and simple.”
“You see that places like Philadelphia, where they [the taxi industry] have a lot of power, they’re going to exercise that power in very explicit ways,” Smith said. “Other places, like DC and Chicago, you’re seeing the opposite. You’re seeing consumers and the new firms winning out in the debates. “
Regulatory Capture
In testimony submitted to the Pennsylvania Public Utility Commission (PAPUC), PPA regulator James Ney claimed he was carrying out the wishes of the business community, citing local companies as having “requested and embraced” government control of the market.
Ney’s testimony touted the city’s effectiveness at placing the market under government control. “Unlike many other US cities, Philadelphia has been successful at keeping the so-called ‘Ride-share App’ companies such as SideCar and Lyft out of operation,” he told the commission.
Responding to criticism of his agency’s “hardnosed” market planning, Ney characterized PPA’s centralized distribution and planning of cab routes as consumer-friendly mandates.
Studies Deny Alleged Benefits
Transportation policy research, however, does not support such claims of positive market effects from regulation. In 2013, Turkish economics professors Tamer Çetin and Kadir Yasin Eryigi studied New York City’s heavily regulated taxicab industry, investigating the economic effects of government regulations on consumer fares.
Çetin and Eryigi found “unique empirical support” for economic claims of adverse market effects caused by government regulation, describing a relationship where “regulation causes an increase in medallion prices, and this increase in medallion prices drives up taxi fares when the number of taxies is restricted by government regulation.”
Speaking of Çetin and Eryigi’s empirical confirmation of economic theory, Smith said the Turkish researchers’ study was “absolutely” correct.
“Medallion prices have outperformed the Standard & Poor’s 500 index,” he noted. “Forget gold, buy medallions!”
Smith continued, “When you have all the money in an industry locked up in making supply scarce, then clearly the money’s going to go to vendors, at the expense of consumers. Once supply is allowed to increase, the price has to fall, just based on a standard supply-and-demand analysis.
“In the long run, the voters and consumers are going to win,” Smith concluded. “It is unfortunate to see some of these practices, in the interim.”
Tom Blumer ([email protected]) writes from Mason, Ohio.
Internet Info:
“The economic effects of government regulation: Evidence from the New York taxicab market,” Tamer Çetin: http://heartland.org/policy-documents/economic-effects-government-regulation-evidence-new-york-taxicab-market/
Tom Blumer writes for The Heartland Institute.
