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Over the past several years, the popularity of “ridesharing” services has grown exponentially across the country.

The Issue

Providers such as Uber, Lyft, and Sidecar do not own any vehicles or employ drivers, but instead have developed smartphone applications that enable consumers to access on-demand driver services. Users can request the closest driver, track the route to their destination, pay electronically, and obtain detailed digital receipts. In many cities these applications work with taxis, limos, and private citizens who drive their own vehicles as for-hire livery options, often at a lower price not under local government control.

Ridesharing companies are beginning to face pressure from traditional taxicab providers who are lobbying local governments to impose onerous regulations on ridesharing. Proponents of such regulations argue rideshare companies have an unfair advantage because they are not forced to adhere to taxi regulations such as price controls, licensing fees, maintenance and insurance requirements, and hours of operation. They also argue allowing unregulated “amateur” drivers poses significant risks to consumers.

Consumer demand for ridesharing services, however, demonstrates why additional regulations on transportation network providers are unnecessary. Rideshare companies must build customer loyalty and positive feedback in order to exist. This serves as a market-based form of regulation. In order to build a large customer base, companies do background checks of prospective drivers, use traditional cars that don’t look like taxis, and utilize consumer rating systems to ensure only the best drivers and vehicles are available to their customers. Customer loyalty and demand for ridesharing have been booming in large part because it offers consumers an alternative to the traditional cab industry, which David Autor, an economics professor at the Massachusetts Institute of Technology, says is “Characterized by high prices, low service, and no accountability.”

Many rideshare companies have adopted a “surge” pricing method based on supply-and-demand rather than a single regulated rate. In times of high demand, such as during a storm or on the night of a holiday, the price “surges” upward. This pricing system provides consumers with a larger supply of drivers during peak times because it gives drivers greater incentive to work during those periods. The price may be higher, but it alleviates the common problem of not being able to find an available cab. Outside of peak times, rates offered by ridesharing companies are usually lower than government-set taxi rates.

Our Stance

Imposing burdensome regulations on ridesharing providers would suppress competition, increase cronyism, and reduce access to transportation options that are reliable, safe, and affordable. Instead of increasing regulations on the rideshare industry, policymakers should consider reforming and removing regulations from traditional taxicab services that make them less competitive.

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