Black Cabs vs Uber – Monopoly power or consumer power?

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June 12, 2014 by Paul Goldsmith

Cab strike

So, it’s time to get your tissues out because this story is likely to make you weep with sympathy. Here we go…yesterday one of the country’s last few cosy cartels that only dominates its market due to the strictness of state regulation took direct action in order to protect that dominance because they wanted to block the entry into their market of an innovate new entrant into their market. That entrant, which makes use of new technology and improves the information you can get on where the nearest free driver is, also happens to be pushing down prices.

You are being asked to support that cartel because, well, because you should want them to continue to benefit from their monopoly power of their market. You are being asked to support their blocking of the new entrant because, well, you don’t want the new entrant to win, and along with that the new entrant, the customer. Sounds like a tricky ask doesn’t it? Yet that is what the London Taxi Drivers’ Association (LTDA) was doing yesterday blockading London with many thousands of black cabs. Frankly, it is difficult to understand why we are even considering that they have a case.

Yet, their case – which is now being discussed in the High Court right now, is an important one. So before you make your mind up – look at the two sides.

Transport for London (TfL) has already licensed Uber to operate on London’s streets, which is why the protest is taking place today even though the High Court hasn’t come to a decision. Uber uses a smartphone app that allows subscribers to view available cars nearby, hail the driver and settle the cut-price fare electronically – you can get the lower rates of private hire firms and you can also track your driver’s progress to the pick up point. Uber changes prices according to demand. During peak times it raises prices to lure more of its Prius owning drivers out onto the streets.

The LTDA argues that Uber are operating illegally, as what the smartphone app amounts to is a taxi meter – which the rules state only those who have passed “the knowledge” are entitled to use. This is important, as if you have ‘qualified’ to use a taxi meter the customer can trust that you are not going to get lost or use a longer route – which is why private car firms have instead to agree a price beforehand with you. The LTDA also suggests that unlicensed drivers are being contacted via the app – who haven’t had the rigorous background checks you would want in a taxi driver – but TfL argue all necessary safeguards are in fact in place. The LTDA say that the premium rate is arbitrary, and will even operate when it rains, instead of being about the number of drivers – but Uber denies this is true. They also argue that if the meter rate is not in front of you but on your smartphone then you are less likely to pay attention to what you are paying – which could result in you being extremely surprised by the size of your bill.

Are LTDA right to be concerned? Well, they raise important questions – but ultimately what Uber is to the LTDA is a serious challenger to their dominance, and the truth is that the market will decide how serious they are. If the quality and price of the service is rated highly by customers, then Uber will be here to stay. If the Cabbies who belong to the LTDA are worried about the effect of Uber they could, you know, try and match them on quality and price. Or they could go to court and blockade the streets to protect their monopoly. In the long term – which is the best strategy? I think I know, and the 850% increase in Uber’s normal daily downloads suggest that I’m not the only one.

 

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