No, Uber and Lyft Won't Hurt Consumers
Criticisms of the new ridesharing services don't account for how the market really works.
Consumers win with Lyft and Uber.
A group of prominent economists recently and universally approved of the new transportation services being provided by Uber and Lyft, noting the benefit to consumers. Though most people are now recognizing the benefits of new, cheap transportation services, some are decrying the dangers of an unregulated market. This particular criticism accuses Uber and Lyft of engaging in a turf war that could hypothetically result in one of the firms replacing traditional cab services with a resulting glut of idling cabs, belching exhaust and clogging the streets.
There’s nothing wrong with a healthy skepticism of the benefits of new goods and services, but musing on potential hazards to the environment and misplaced fears of monopoly expose a fundamental misunderstanding of how markets work. While competition is certainly fierce in the current turf war between different transportation services, consumers will almost certainly come out winners – despite fears to the contrary – as people benefit from lower fares, expanded service and greater control of customer feedback.
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But we don’t have to fret over a potentially dystopian future when we can already see the benefits now. Beyond the obvious and immediate benefit of lower prices, these new transportation services cater to customers long-ignored by traditional cab companies. As we outline in a new policy piece for the Mercatus Center at George Mason University, cab companies benefit most when the number of cars in operation are at their lowest. (And there were fewer active licenses in New York City in 2004 than in 1937!) A restricted supply promotes both high prices and more customers desperate to find a cab.
Conversely, with more cars competing for patrons, drivers must now cater to previously underserved communities. Before, these drivers needed only to serve high-traffic areas; now that cars are in abundance, these communities will see more consistent, not to mention lower-priced, services. In other words, increased competition means that previously marginalized communities will now have access to more consistent service.
So it’s no surprise that more people are using cab services than they were before. Critics argue that this increases the number of cars on the road and therefore worsens air pollution. But this ignores the fact that fewer people will need to use their own car to ensure transportation services. The ultimate promise of peer-to-peer markets is that by more intensely utilizing some automobiles, fewer total vehicles are needed because the existing stock of cars will be put to more efficient uses.
[READ: How Google and Uber Illustrate EU Innovation Dilemma]
Even if the preceding argument were false, criticizing these new services for increasing the number of cars available is an implicit – and somewhat elitist – argument for limiting the number of people (or types of people) who are able to take advantage of cab services.
Uber and Lyft have also introduced a novel feature in allowing customers to directly rate their drivers. No more will customers have to remember names, license numbers or even where to call to lodge a complaint. If a driver takes tourists the long way or drives aggressively, feedback is instantaneous (and usually savage). Indeed, the complaint is often made that the current rating system penalizes drivers too harshly. Bottom line, the incentives ensure that drivers at the very least remain on their best behavior.
Finally, to assume that one firm shall “rule them all” is just as naive as assuming that one soda product will inevitably rule the market for soft drinks with an iron fist. The last time we looked, our respective grocery stores were well stocked with a variety of cola products. As long as markets have free entry, which licensing forbids, we should not fear a monopolist and neither should the future of transportation services.
[DATA MINE: The Cheapest Way to Get Home From Brunch This Weekend]
Change is hard, especially for the privileged. But offering goods and services to previously ignored customers is a sign of progress and shouldn’t be dismissed lightly. Successful entrepreneurial ventures are incredibly difficult to come by and even harder to sustain. Fear, on the other hand, is easy to create and even easier to spread. We can do better.
