Wednesday, April 22, 2015

Maryland's Ridesharing Legislation Is Better Than Prohibition

On April 14th, the Maryland Senate followed the House of Delegates in passing legislation, which would legalize commercial ridesharing applications like Uber and Lyft, making Maryland the tenth state to pass such legislation. Now, the legislation waits for Governor Larry Hogan’s signature to become a law.
I commend Maryland legislators for understanding that the emergence of the new “sharing economy” is in the interests of consumers and the economy as a whole. I commend them for realizing that new innovative technologies are emerging to compete with traditional business models. I also commend Maryland legislators for not giving in to the interests of taxicab commissions by issuing an outright prohibition on ridesharing services. And I appreciate that the legislation bans Maryland municipalities from levying taxes or additional regulations on ridesharing companies or any participants in ridesharing markets. (Although, it has been reported that municipalities could add a $0.25 surcharge fee on all rides. See here and here.)
Having said all this, I would not call this legislation a free-market approach to the sharing economy. The provisions require “transportation network companies” – as the legislation defines ridesharing companies - to collect, file, and register information, creating a barrier for new startups to emerge in the ridesharing market.
For example, a transportation network company must register with the Public Service Commission, create an application process for individuals to apply for registration as a transportation network operator (driver), maintain a current registry of drivers and their personal information, and submit proof to the Commission that the company is registered with the State of Maryland – just to name a few of the requirements.
Uber and Lyft already keep driver information on file in order to provide transparency and accountability to their consumers. So this is not a costly requirement, right? Wrong. Uber and Lyft are already well-established and likely can afford to cover these costs. But a new ridesharing start-up, on the other hand, may not have the capital to provide this type of immediate transparency, thus they will not be able to operate in Maryland.
I do not know how long the registration and approval process will take for a “transportation network company” to become certified with the Commission. But if it has taken several years for Maryland legislators to recognize the benefits of ridesharing because the interests of taxicab commissions have hindered the process, it concerns me that new ridesharing start-ups will be disadvantaged at the hands of well-established companies like Uber and Lyft. In other words, these rules could incentivize successful ridesharing companies like Uber and Lyft to lobby Maryland’s Public Service Commission to reject the entry of potential competitors.
Additionally, the reason that ridesharing companies must maintain personal information about their drivers for the Public Service Commission is because the legislation also has a long list of regulatory standards for drivers regarding age, criminal background, and vehicle compliance. The standards that the State would require might be in the interest of public safety, and they are likely similar to the standards that Uber and Lyft administrators already conduct when hiring drivers. But it seems unnecessary and costly for both the respective ridesharing company and the Commission to perform a background investigation on each driver. Instead, a case-by-case investigation of instances of consumer harm would be warranted to insure that ridesharing companies have followed the State’s standards.
Interestingly, taxicabs are regulated at the county-level in Maryland, therefore ridesharing drivers might actually be subjected to regulations that taxicabs drivers are not. Yet, even if drivers of ridesharing companies and taxicab drivers were subjected to the same regulations - which would be a fair way to “level the playing field,” it does not necessarily mean the public is any safer. Competition, not regulation, generally provides the most benefits to consumers, whether those benefits come in the form of lower prices, more convenience, public safety or healthy environments. As Randolph May and I stated in our Perspectives from FSF Scholars entitled “The Sharing Economy: A Positive Shared Vision for the Future:”
If purveyors of sharing applications engage in harmful, unhealthy, or unsafe activities, competition is probably the most important regulatory mechanism to address any real problems. In competitive markets, poor consumer satisfaction generally means that a company will lose market share, or even fall out of the market. If a company is not operating safely or if it is putting its users in unhealthy conditions, a competitive market allows for unsatisfied consumers to choose alternatives.
The legislation does lift some of the burdensome licensing regulations for taxicabs, but other regulations that remain appear unnecessary. Rather, many of these regulations appear to have been adopted to “level the playing field” between ridesharing companies and taxicab companies. In our paper, Randolph May and I stated:
If the laws or regulations applicable to the existing incumbent businesses no longer make sense today, they should be changed. It always harms consumers when public policymakers attempt to “level the playing field” by subjecting entities to regulatory restrictions that are not needed. The proper way to respond to “level the playing field” claims is to remove unnecessary regulations wherever they apply, not to expand them to new entities.
It is fair to apply the same level of regulation to both taxicabs and ridesharing companies, but the best way to “level the playing field” is to deregulate down and open the market to contestability and competition – not regulate up as this legislation would do.
Despite all of this, a regulated ridesharing market that makes room for new entrants is still better than one based on prohibitions that render new entrants unlawful.