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Uber and "Unfair" Competition: Regulating Before Thinking

Moscow may have the worst traffic in the world, but it has some of the most innovative taxi services. And unlike U.S. cities, it allows them to flourish and compete. Yandex Taxi, Wheely and Get Taxi work roughly the same way. Using a smart-phone app, you locate a nearby taxi and “hail” it. You can track the car as it approaches your location and check on how previous riders have rated the driver. The apps cut down wait time, and some even allow you to avoid the hassle of cash by paying through the app on your phone. In a world full of frustrating delays, these companies provide the valuable commodity of certainty. Their success in Moscow has led to new apps for London, Tel Aviv, six other Russian cities, and plans to launch in Istanbul, Dubai and New York. Expansion for the American equivalent of these apps—Uber—has not been so easy. In fact, Uber has faced a regulatory battle in every city it’s entered. The “rogue app”—as the Chicago Tribune calls it—has been accused of failing to protect public safety and using deceptive business methods. The Boston cab service adds the charge of “unfair competition and consumer fraud” and, ironically, objects to Uber primarily because it doesn’t have to obey city regulations. From San Francisco to Boston, Uber faces charges that threaten to shut it down. Fortunately, some of these legal battles have been fought and won. In December, Uber secured legality in both Washington, D.C., and New York. Initially, the company looked doomed, but public support raised enough objection that the cities were forced to rule in favor of the app. This support didn’t just come from consumers. Drivers benefit from Uber as well, as Rachel Holt—the general manager of Uber DC—recently discussed at an AEI event: Rather than support these entrepreneurs or secure better service for consumers—as regulation should do—cab companies have twisted the law to try and protect their business. In the case of Uber, taxi drivers and riders suffer even as the cab companies claim to be acting in their best interest. The first step in halting these corruptive practices is listening to the advice Adam Smith gave when he addressed the problems of regulation in “The Wealth of Nations:”
The proposal of any new law or regulation of commerce which comes from this order [narrowing the competition] ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.
Right now, we appear to have the opposite approach: regulate first, then ask questions. But we fail to realize that even these well-intended regulations often do more to restrict entrepreneurs than protect consumers. Until we adopt a more suspicious view of regulation, laws we hope will limit dominating companies will only serve to empower them. And—if that isn’t bad enough—regulations will make American cities the toughest and most expensive places to hail a cab. On Tuesday, May 21, 2013, AEI will host another discussion in the Culture of Competition series. Tune in online or join us in DC for “Free beer: Liberating libations from ‘Bootleggers and Baptists.”