Entrepreneurs are free to offer products and services in an unfettered free-market economy. A free market encourages innovation, and willing entrepreneurs seek to provide products and services at competitive prices. Governments often seek to impose regulations on certain sectors of the market that their advisors may deem essential, such as several forms of passenger transportation services that operate within cities and even between cities. Regulation often involves market entry restrictions where state agencies decide who can enter the market as a service provider. Such regulation also protects the commercial interests of established players.
The taxi industry in most cities worldwide is a case in point. Municipal officials issue taxi licenses and restrict the number of taxis that operate within their jurisdictions, as well as setting tariff levels. However, private individuals have for generations engaged in ride-sharing and carpooling, in which several people travel in the same vehicle between home and work or home and school, including across municipal boundaries and between cities. The “advertising” often occurs through word-of-mouth, and private discussions established the tariffs. Some schools and workplaces even have noticeboards where colleagues and cohorts either offer or ask for rides.
Several years ago, the Allo-Stop service connected people who were offering rides with people who were seeking rides. Connections were made through local telephone numbers and involved a small fee. While most jurisdictions allowed Allo-Stop to operate, Ontario undertook action to stop the service within its boundaries. Enter services such as Uber and Lyft that use Internet-based applications to connect people who seek rides with people who offer rides. The computer that houses the software may be located in a different jurisdiction.
While some cities allow app-based ride-sharing entrepreneurs to offer their services unimpeded, other cities have actively undertaken steps to terminate app-based ride-sharing services in order to protect their local taxi industries. In San Francisco, the Yellow Cab taxi company has filed for bankruptcy citing competition from ride-sharing entrepreneurs connected with Uber and Lyft. In Florida, boat owners have begun to offer rides using Internet-based ride-sharing apps, and state officials have become alarmed as the service has steadily grown. In cities with few road bridges or traffic congestion on road bridges, boats can offer a faster alternative.
Several cities have chosen to fight ride-sharing services by imposing hefty fines on entrepreneurs who advertise via the Internet application, accusing them of operating illegal taxi service. The ride-sharing service can also extend into the interurban and intercity realm where there may not be a commercial operator offering service at the times when a segment of the market would like to travel. In many cases, a total absence of a commercial operator leaves the ride-sharing app as the only means by which some people may travel between towns.
The ride-sharing Internet app that can connect people seeking rides between small towns with people offering rides exposes the shortcomings of government regulation of intercity passenger transportation. Regulation was intended to protect rural and local services by compelling commercial operators to cross-subsidize such services from their earnings on the well-travelled express routes between major cities. Such practice requires that people who live in large cities pay higher fares so that rural folks may travel for less than they otherwise would have to pay. However, ridership has plummeted along most local and rural routes to the point of service cancellation.
The claim that regulation protects the local and rural routes is disproven by the low numbers of riders. Some 20 years ago, Transport Canada evaluated the regulation of intercity passenger transportation and found that the practice was of little value. The practice of market entry restriction protects the earnings of long-established operators that provide service between major cities. Those same operators may be quite capable of remaining viable and competitive offering services between major cities in the absence of economic regulation of their industry.
While officials in Ontario shut down Allo-Stop, a ride-sharing app based in computers located in outside the jurisdiction poses a new challenge for enforcement officials. One intercity bus company operates high capacity double decker buses between Canada’s largest cities, offering riders very competitive prices. Other operators could follow the same example by using larger vehicles that carry more passengers at more competitive rates between large cities.
The ride-sharing app can offer travelers a wider variety of travel choices inside cities and between cities also served by bus and train service, and also between towns without bus and train service. It is entirely possible for established bus operators to offer cost-competitive service against ride-sharing app services between major cities, making economic regulation of intercity surface passenger transportation quite simply obsolete.
* Harry Valentine is a free-marketeer living in Eastern Ontario.