Business

Uber’s Unintended Consequences

In NYC, where the owner of a taxicab could have paid as much as $1 million for the right to pick up fares, drivers are told what to charge, which payment system to use, and the color of their car. A lime-green cab can pick up fares in the outer boroughs and above West 110th street or East 96th while the area surrounding midtown is yellow cab territory.

Meanwhile, in Chicago a cab must have its medallion number in “plain black gothic figures” on the driver’s side hood and both rear seat doors. The city’s fare structure, the $2 for the airport departure/arrival tax and the $50 vomit cleanup fee have to be clearly posted on the back of the driver’s seat.

Cab drivers seemed satisfied with the constraints. Yes, they were regulated but they had a guaranteed market. And they knew they were the only ride in town. When a cab ride was unsatisfactory, the most passengers could do was complain. You can see below that reckless driving received the most complaints:

Uber impact on taxicab complaints — From: “The Competitive Effects of the Sharing Economy: How is Uber Changing Taxis?”

Where are we going? To the unexpected impact of Uber.

Passenger Complaints

Quite unintentionally, Uber has probably improved the quality of a NYC or Chicago taxi ride. Concluding that NYC and Chicago are receiving fewer complaints, the author of a recent study suggests the reason is Uber and other ride sharing services. He concludes that some of the dissatisfied taxicab riders are now complaining less because they switched to an Uber or Lyft alternative.

Also though he believes that cab riders have less to complain about. Since regulation prevents drivers from competing by reducing fares or changing their payment methods, instead they are modifying their behavior. They can be more polite, their cabs can be cleaner and more comfortable, they can turn off their cell phones.

Although complaints appear to have started to diminish just before the Uber entered the market, afterwards they clearly trended downwards:

From: “The Competitive Effects of the Sharing Economy: How is Uber Changing Taxis?”

Our Bottom Line: Externalities

Defined as a beneficial impact on an uninvolved third party, positive externalities result from vaccines when fewer unvaccinated people become ill or if education leads to widespread innovation.

So, when Uber elevated the quality of your taxicab ride, it too created a positive externality.

Elaine Schwartz

Elaine Schwartz has spent her career sharing the interesting side of economics. At the Kent Place School in Summit, NJ, she has been honored through an Endowed Chair in Economics and the History Department chairmanship. At the same time, she developed curricula and wrote several books including Understanding Our Economy (originally published by Addison Wesley as Economics Our American Economy) and Econ 101 ½ (Avon Books/Harper Collins). Elaine has also written in the Encyclopedia of New Jersey (Rutgers University Press) and was a featured teacher in the Annenberg/CPB video project “The Economics Classroom.” Beyond the classroom, she has presented Econ 101 ½ talks and led workshops for the Foundation for Teaching Economics, the National Council on Economic Education and for the Concord Coalition.