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D.C.’s Gift to Uber and Lyft

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D.C.’s Gift to Uber and Lyft

April 15, 2018

Some policymakers are increasingly concerned about the concentration of power in a small number of companies, leading to calls for more expansive antitrust policy or stricter regulations across a range of industries. However, government policies create barriers to entry that lead to the market concentration that fuels their consternation.

The most recent example is in Washington D.C., where Mayor Bowser’s office recently said that ride-hailing company Via had 90 days to broaden its coverage areas to comply with a District law. If not, Via would face penalties in the form of fines or even the loss of its license. While the law, and D.C.’s new commitment to enforce it, is designed to ensure more access to ride-haling for all District residents, it is more likely to contribute to higher barriers to entry for ride-hailing companies. These barriers would only further entrench established incumbents.

The new warning stems from officials recently learning that Via’s sphere of operation does not extend to the entire city, with Wards 7 and 8 east of the Anacostia River and neighborhoods in the upper Northwest and Northeast falling outside of the sphere. The limited sphere of operation runs afoul of provisions in the Vehicle for Hire Innovation Amendment Act of 2014, which requires ride-hailing companies using digital dispatch to “provide service throughout the entire District.”

Just last year an article in the Washington Post detailed the struggles of new entrants trying to gain a foothold to compete with the two behemoths of Uber and Lyft. Startups from Bridj to Split to Sidecar, among others, launched in the District but ultimately “failed to find a sustainable business model.”

It is difficult to build out a network of enough drivers within a market to become a viable competitor to the established incumbents. If a platform lacks adequate drivers, wait times could become so lengthy that passengers quickly go back to the status quo options.

Lyft and Uber entered the District before these requirements were in place, Uber in 2011 and Lyft in 2013, giving them time to build up their networks before expanding their coverage area. They faced their own struggles navigating regulations in the District, but were not subject to all of the provisions that were ultimately included in the 2014 law.

New entrants had been able to operate without being in compliance with the requirement to offer service throughout the District, although it is not clear why, as multiple reports discussed their spheres of operation at the time. Even the major companies are struggling to turn a profit. Uber’s $1.1 billion loss in the fourth quarter of 2017 was an improvement over the $1.46 billion loss in the prior quarter. Even with significant revenue gains last year, Lyft still lost more than $200 million in the first half of 2017.

Entrants that went out of business pointed to the cheap rides offered by the incumbents, which made it difficult for newcomers to compete and attract sufficient ridership.

Via entered the District in 2016 with more financial backing than other startups. It planned to start operations in the core of the city, and eventually expand to cover the entire city.

The company initially launched with a service area mirroring the Red Line of the metro to try to capitalize on the line’s maintenance program—which led to service disruptions and unpredictability for people usually taking that metro line. The company already enacted one phase of expansion, extending service to the H Street Northeast corridor in June 2017. This would follow the company’s trajectory in New York, where Via now operates across all five boroughs, and Chicago.

In one sense, it is understandable that regulators want to try to make sure that residents have more transportation options available. D.C. Council-member Mary Cheh (D-Ward 3), who helped draft the 2014 ride-hailing law, cited discrimination among traditional taxis as one of the animating factors behind the provision requiring full service across D.C.

However, enforcement of these requirements is more likely to knock out companies such as Via and smaller startups that struggle to comply. Requiring new entrants to offer services throughout the entire city might strain companies’ nascent network of drivers, and render them unable to compete with larger companies. Via may ultimately be able to comply, but any other ride-hailing company considering entering the District will find it substantially harder to operate.

Uber and Lyft, meanwhile, likely welcome this new wave of enforcement that could knock off their promising new rivals, leaving the marketplace with two dominant, entrenched ride-hailing platforms and traditional taxi cabs. In this situation, residents throughout the District might face fewer options and higher prices. This is just the latest iteration of government policies inadvertently insulating incumbents from competition and fueling growing market concentration.

Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes.

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