The Uber Benevolent Dictator Problem

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People love Uber, and I’ve personally been delighted in the past by the efficiency and “magic” of the service. It is amazing that one can press a button on a phone and have a car show up to take them on their way. As an economist, I’ve loved the fact that one of the worst cesspools of rent-seeking regulation-protected market inefficiencies – the taxicab market – has been disrupted. But if Uber is truly upending this market, why should consumers ever trust a single company to own that market, even if they claim to be doing good? This is a lot like the benevolent dictator dilemma, and we should be weary. We should only accept healthy competition in the taxi-technology market.

I’ll come back to the benevolent dictator point/accusation in a minute, but first, I want to point out that what people love about Uber is not Uber itself, but the technology of on-demand transportation services (I’ll call that ODT). Uber was the strongest pioneer in the ODT market, but good ideas spawn competitors. There are now choices – Lyft, SideCar, and Hailo, for example – and they are also as delightful to use, I should point out.

All this market-disrupting activity (those tech people do fetishize phrases like “disrupt” and “make the world a better place” don’t they?) is pretty good because it broke strong market inefficiencies. In short, taxicab markets are a common economist whipping post due to regulation-protected profits. Economists call this “rent-seeking” through regulatory capture. As a result consumers faced silly situations where you can’t call a yellow cab, but only a black cab, and there aren’t enough cabs in certain parts of town and too many in others. Taxicab owners worked as a cartel, and people imagine dark smoky rooms where deals are made.

Oh, who should save us from this horrible tyranny of the taxi cartels?

Well, along came Uber. Yay! Even when they were finding “creative” loopholes around various regulatory systems, we consumers were complicit. Isn’t that better than the taxi cartel? Sometimes the tactics were in the grey area, like guerrilla freedom fighters. Uber (and the other ODT companies, yes) just outright flaunted the law at times with fines as a cost of doing business (though in Virginia, they came to a nice resolution). Uber CEO, Travis Klanick, once said “that if you ask for permission upfront for something that’s already legal, you’ll never get it.” Go freedom fighters! Right?

Now, Uber has become increasingly aggressive with their market growth. Not too long ago I called a yellow card foul on Uber for some shady business practices, and this stuff is re-emerging in the news again, with TheVerge calling it “sabotage“. These tactics are far from not being evil, and definitely get my spidey-senses going crazy. It’s clear that Uber wishes to have overwhelming marketshare with little to no competition (“Shave the Stash” campaign, anyone?). In other words, Uber saved us from the evil taxi cartels, and we should trust Uber to be the benevolent dictator, to not be evil, and keep service great and prices low.

I get it. Businesses want marketshare because they are for-profit capitalist entities, and that’s the American spirit. But we as consumers should be weary when enabling any one business to dominate a market because, like any benevolent dictator, things don’t always go great in the long-run. I’m talking about monopolistic tendencies.

If Uber’s the only game in town, and we greet them with laurels as saviors, how long do we trust them to keep prices low? How long can we trust them to keep paying their drivers well? How long can we trust them to even “employ” drivers at all? For profit businesses, especially ones with huge overwhelming marketshare, have a bad track record. They start out claiming to be pro-consumer and to not be evil, but remember, they have shareholders too. They become rent-seeking too.

It seems those people in tech industry have a knack for doing this. They love to excite consumers with this revolutionary sprit of upending a market that was screwing consumers, and then hope we all worship them as benevolent dictators, saviors, and forget that they exist for profit. Amazon tried to save us from big, bad, evil book publisher and retailers, and now they are doing sketchy stuff of their own. Google hasn’t really been that great at keeping to “don’t be evil.” Remember that the government had to sue Microsoft for antitrust reasons? Apple, once the underdog saving us from Microsoft, hasn’t been that clean itself.

One argument for Uber wanting to own the market is that ODT services require “scale” – the more drivers and consumers using that platform, the more convenient it becomes. In other words, it’s more efficient for everyone to only use one platform and not have fragmentation. Who wants to check five different apps for a ride? This is what what economists call “increasing returns to scale,” where the more people who use a product, the better it is for all users. However, just because a business model benefits from scale doesn’t justify a monopoly. You end up with lazy, overpriced products like 90s era Windows, and anti-consumer behavior in the long-run.

Just because Uber is a conveniently awesome product, and just because they present themselves as saviors from the dark ages of taxi cartels, doesn’t mean they deserve for us to bless them with a consumer-granted monopoly. Other services are also good, and the taxi market is better off with many players, with healthy competition from Lyft, Hailo, SideCar, Gett, and even the traditional taxi companies. We don’t need a benevolent dictator, but a healthy marketplace. Competition is the spirit of true American capitalism, and its the only thing that keeps a company from being evil.

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