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What to do about Uber

Illustration for article titled What to do about Uber

Let me get one thing clear: I am fascinated by Uber, as a business, as a service, as a model for the modern economy, and even as a force for racial justice (more on that some other time). But it's increasingly clear that the fast-growing ride-hailing service is what economists would call a natural monopoly, with commensurate profitability. Should the windfall really all go to Travis Kalanick and the investors who are now putting a $30bn valuation on the company?


It's inevitable that one ride-sharing service will dominate in each major metropolitan area. Neither passengers nor drivers want to maintain accounts with multiple services. The latest numbers on Travis Kalanick's company, obtained by Business Insider, show a business likely to bring in nearly $1bn a month by this time next year, far ahead of any competitor.

Uber sometimes looks like Microsoft at its most aggressive under Bill Gates, not simply content to out-compete, but determined to crush the opposition. Uber has not only sabotaged competitors on the roads; it is starving funding for companies like Lyft, barring investors who place multiple bets in the ride-sharing sector.


In short, Uber not only has the economic characteristics of a monopoly, but the arrogance that goes with such market dominance. And that arrogance has created the political conditions for anti-trust action.

I don't believe you can enforce competition in the ride-sharing market, at least not without sacrificing some of the efficiency brought by a single dominant exchange. But cities such as New York could choose which ride-sharing service to license: in other words, it could select the winner of this natural monopoly, capture some of the efficiency gains and share with the losers in this technological transition.


So here's a modest suggestion: treat the city's roads like a traditional public utility, or a public resource like cell spectrum. Invite Uber, Lyft and other ride-sharing companies to tender for a license as the city's preferred ride-sharing service. Let them compete to show how they'll treat drivers and riders fairly, in their terms and conditions; and let them bid for the right to this future profit stream.

The proceeds, which would be substantial, could go to support the market in taxi medallions, compensating some of those most resistant to technological change. Public transportation, for those who can't afford Uber rides, would also be a beneficiary.


I have no problem with Travis Kalanick getting rich. His execution has been admirably ruthless. But he and his investors won't be able to keep all the monopoly profits without a political backlash: litigation; strikes; and more horrific press coverage. A calmer distribution of the efficiency gains, with bids set in a competitive city-wide tender, is preferable.

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