MERCATUS ON POLICY 

Regulation of Platform Markets in Transportation 

Stewart Dompe and Adam C. Smith 

The development of communication networks along with the rapidly expanding use of smartphones has resulted in unexpected innovations, revolutionizing taxicab and transportation services. 

Two new firms, Uber and Lyft, offer a particularly novel transportation service by providing car-share and taxi services via cell phone applications and GPS. Users needing rides simply push buttons on their phones, and within minutes, vehicles arrive at their locations. 

This platform market would seem to be a boon to both customers and providers. But, as novel services, Uber and Lyft are competing with established taxicab com­panies, who resist these newcomers. In cities such as Chicago, Houston, Seattle, and Boston, local taxi com­panies are suing and submitting regulatory complaints in attempts to shut down these would-be competitors.

These threatened taxicab firms are spending scarce resources on contesting wealth instead of creating it, or rent-seeking.The goal of rent-seeking is to create higher profits by lobbying politicians to impose costly regulatory burdens, such as licensure, safety prescrip­tions, and price controls, on their new competitors. This is how entrenched interest groups, citing something like public safety, use government to protect their privileges and stifle market innovations.

http://mercatus.org/sites/default/files/Dompe-Smith-Platform-Markets-MOP.pdf