Ridesharing vs. Taxis: Rethinking Regulations to Allow for Innovation

The advent of ridesharing platforms like Uber and Lyft has prompted regulators everywhere to rethink their approach to the vehicle-for-hire industry. Taxi companies and drivers have called for a level playing field where they can compete on equal footing with ridesharing drivers. The evidence suggests that the best means to provide parity lies in extensive taxi deregulation. In this policy brief, we provide a framework to help policymakers understand the harms of anticompetitive taxi regulations. We organize the discussion around regulations that act as barriers to entry, control prices, and mandate certain business practices. We briefly address the original rationale for taxi regulation—the belief that it was necessary to correct for ruinous competition or for market failures such as asymmetric information—and explain why this rationale is obsolete. We then discuss the unintended consequences of regulation, focusing on the tendency for regulations to benefit incumbent firms at the expense of consumers and would-be competitors. We conclude with a roadmap for regulatory reform that includes specific steps for reform as well as guiding principles for sound regulation.