The Taxi Industry Can Innovate, Too

Experience doesn’t necessarily signal a trend: Uber and Lyft remain popular with consumers, and with investors, who recently valued Uber at $40 billion. The ride-sharing startups are in the process of thoroughly disrupting the taxi industry.

But it’s far too early to eulogize the taxi industry. As my experience shows, a bad experience or two can cause individuals to rethink their fondness for the service. And if cabbies start playing a smarter defense, they may be able to more effective battle back against Uber and Lyft. Here’s how.

First, stop pushing for regulation. Instead, focus on deregulation. While Uber deserves kudos for being innovative, let’s be truthful: Its success has come from creatively exploiting a regulatory loophole. Uber argues that it is a rideshare service, not a taxi service. What’s the difference? Taxis cruise the streets seeking fares, while ridesharing services don’t, relying on apps to arrange a form of carpooling (wink, wink). As a result of this minor distinction, Uber has successfully argued it should be immune from taxi regulations.

Not being categorized as a taxi provides rideshare companies like Uber, Lyft, and Sidecar with a key pricing advantage. Taxis are required by law to charge pre-approved prices. In contrast, since Uber is a rideshare service, it has complete flexibility to raise and lower its prices based on demand. As a result, Uber undercuts taxis during off-peak times and charges premiums during high demand periods. Implementing surcharges not only increases profits, but also helps smooth out the traditional supply-demand imbalance that anyone who’s tried to hail a cab in a rainstorm has experienced. (Higher surge prices curb customer demand while also increasing the supply of drivers, since more drivers want to work during periods when they can charge more.) Archaic regulation has made taxis sitting ducks for ridesharing services.

Taxi companies are defensively lobbying to regulate ridesharing services. This is a bad idea and won’t work. Typically, more competition leads to deregulation. Consider the regulation-to-deregulation evolution in the long distance telephone market. AT&T once had a monopoly on long distance service and was thus regulated by the government. When Sprint and MCI entered the market with innovative offerings, the need for regulation vanished – competition ensured good service and fair prices. This exact scenario is occurring in the taxi market. Ridesharing is here to stay and as a result of this competition, it’s time to deregulate. Every car service should be allowed to set whatever price they want.

Copy Uber’s surge pricing model: Peak and off-peak is a standard pricing model used in hotels, airlines, even commuter trains. It’s a perfect way to deal with demand swings. Taxis should use it, too—and they should advertise it, by advertising current prices (+10%, -30%, etc.) on their cab-top digital billboards. This would allows taxis to benefit from flexible pricing in a key area where they still have a monopoly: on-street pick-ups.

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