UberX: Apps are magic, and other policy myths

Today we heard news that Toronto city council has created a new class of license for drivers in the city, to allow for the use of ride-sharing apps like Uber. While the policy conflated several issues which were not necessarily dependent upon each other – such as technology-mediated dispatch and flexible employment and licensing – there were few glaringly problematic elements to the motion. Except for one in particular. 
The new policy allows for surge pricing, and indeed, potentially even expands its applicability.

This is truly astounding to me, and is yet another example of policy-makers allowing themselves to be distracted from base principles by technology.

In Toronto, currently, if you take a metered taxi ride, not only does the meter tick along according to clearly posted rates, there is a small, tamper resistant seal holding the unit closed.

Why is that? Why would the government mandate that taxi driver cannot open and adjust the taxi meter? It would seem that this is a policy response to a past problem in which unscrupulous drivers would tamper with the unit to charge riders unfair prices. For anyone who has travelled in the developing world, this type of protection is seen for what it is; a necessary bulwark against the circus of gouging that comes with unregulated taxi services.

So I wonder – where is the tamper seal on Uber’s surge algorithm? Would I feel better getting into a taxi if the driver said in advance, “I’m feeling busy, so I will charge you double.”?

I would first ask – is city council confident that they understand what drives the current surge algorithm? If we were to not call it “surge pricing”, but instead call it “arbitrary price increases”, would city council be comfortable leaving the decision for those increases with the industry they purport to regulate?

Unless, their thinking goes, that either hailing apps represent too small a proportion of ridership, or that market pressures will keep prices low.

I can’t imagine that they are considering the first possibility, since this is meant to be a policy about preparing our regulations for the future.

The second possibility is obviated by Uber’s behavior in the Toronto market so far – using its massive VC backed leverage to crush rival app Hailo before abruptly jacking prices: technology companies work on different economics than local players, and can use scale, clout and platform adoption to distort markets.

But there is also the question of why city council would allow surge pricing in the first place. The argument made by Uber is that surge pricing is necessary to bring more drivers on the road – giving them an incentive through the higher fares. But there’s just one problem; it isn’t true. An in-depth data analysis of surge pricing in Washington DC found that surge pricing did not bring any more drivers on the road, but instead redistributed all of the existing drivers on the road to wealthier neighborhoods during the surge.

Given that taxis represent a part of the urban transit infrastructure, this kind of engineered inequity should give policy-makers pause. As Uber moves to compete directly with core transit services with offers like Uber Pool, city council should ask what kind of city we are trying to create.

And more importantly, given that carte blanche has just been given on “surging” prices for rides hailed by an app, it is important for policy makers to understand the basis for the decisions made around surging.

I love hailing a taxi using an app that pulls the nearest available car. But I also appreciate that rates have been regulated for a reason, and city hall just cut the tamper seal off the biggest taxi meter in town.