One of the most vibrant areas of recent economic development has been the “share economy.” Facilitated by popular smartphones and animated not only by economics, but also by many people’s interest in expanding social networks, peer-to-peer (P2P) software applications now facilitate services from shopping to local accommodations.
These services typically involve the use of personal property. As a result, they have run into resistance from established commercial operations and in some instances local regulators. One prominent example of this clash of the old and new economy has been ridesharing, the latest evolution of the once ubiquitous college ride-board. Entrepreneurs have facilitated new forms of ridesharing that use Internet-based technology to connect customers with people interested in providing transportation with their own cars and allow for payment in a variety of ways. These ridesharing services can spur competition by providing consumers with new ways to more easily locate, arrange, and pay for rides, as compared to traditional commercial methods such as hailing a taxi on the street or calling a taxi dispatcher. But they can also raise some legitimate consumer protection concerns.
FTC staff recently submitted a letter to Alderman Brendan Reilly of the Chicago City Council regarding a proposed ordinance that would allow for the licensing and operation of some ridesharing services, called transportation network providers (TNPs). We praised the ordinance for making it possible for some rideshare apps to operate using personal vehicles. However, staff noted that some of the proposed provisions in the ordinance are likely to limit the benefits to consumers without providing them with any apparent protections. The ordinance would:
- impose a significant license fee on the apps that would make it more expensive for them to operate and likely lead to higher costs for consumers.
- restrict their use of varied and creative pricing methods, and impose elevated insurance requirements that don’t appear to be connected to any evidence of risk to riders compared to commercial taxis.
- flatly ban TNPs from serving Chicagoland airports and the convention center with no apparent justification.
- impose extensive records and data collection requirements, raising some concerns about both competition and consumer privacy.
- prohibit TNPs from owning or financing vehicles if they wanted to, and cars used to provide services would be prohibited from having any in or on-vehicle advertising.
Each of these restrictions seems likely to limit competition and the consumer benefits of legalized ridesharing and blunt the perceived threat they pose to incumbent commercial taxi and sedan services rather than protect consumers from some kind of harm.
Competition is at the heart of America’s economy. Vigorous competition among sellers in an open marketplace can provide consumers the benefits of lower prices, higher quality products and services, and greater innovation. This is just as true for app-based transportation and other kinds of P2P services. So while staff praised Chicago for moving in the right direction, we urged them to keep moving.