To what extent is the entry of Uber Inc

1
To what extent is the entry of Uber Inc. in the taxi industry efficient?
ECB3OKVECO
Utrecht University
Utrecht School of Economics
Fabjan Abazaj
June 2015

2
Abstract
This paper aims to provide insights in light of Uber’s Inc. efficient entry in the taxi industry.
Contrary to normal taxis, Uber provides a digital platform (mobile-application), connecting
independent drivers with passengers seeking a ride. The company resembles the premises of
sharing economy, which is often defined as collaborative consumption or peer-to-peer
consumption. The entry of Uber in the taxi industry caused confusion among regulators
regarding which form of regulation is the most appropriate. Through their sole operating
platform (mobile-app), the company has the potential to alleviate certain market failures
prevalent in the taxi industry such as asymmetric information and situational monopoly while in
the same time creating pitfalls in ensuring safety while operating. On one hand countries like
California accommodated the new entrant in the industry with a regulatory framework, while on
the other hand countries in Europe banned the company to operate, reasoning that platforms such
as Uber exhibit non-compliance with the regulatory frameork. Therefore, it becomes crucial,
both in terms of policymaking as well as with regard to academic research, to provide insights in
light of Uber’s efficient entry in the taxi industry. This paper concludes that the company
increased efficiency in the taxi industry to a certain extent and suggests a co-regulation approach
as a policy recommendation.
Keywords: Uber, entry, taxi industry, mobile-app, efficient, regulation, policy
recommendation

3
Table of Contents
1. Introduction………………………………………………………………………….4
2. Uber’s Peculiarities…………………………………………………………………..5
3. Entry of Uber in the taxi market……………………………………………………6
3.1 Economic Relevance………………………………………………………..6
3.1.1 Alleviation of Situational Monopoly……………………………..7
3.1.2 Disrupting the dominant position of incumbent firms………....7
3.1.3 Reduction of the taxi fee………………………………………….9
3.2 Safety Issues………………………………………………………………..10
3.2.1 Insurance coverage and liability……………………………….10
3.2.2 Addressing the Insurance “Gap” pitfall……………………….11
4. California’s Regulatory Framework………………………………………………12
4.1 Safety and Insurance………………………………………………13
4.2 Regulatory Requirements…………………………………………13
5. Conclusion and suggestions for further research…………………………………14
6. References……………………………………………………………………………16

4
1.Introduction
Taxis play a significant role in the transportation sector by providing point-to-point
mobility services in urban areas. Often, they serve as substitutes of other public transportation
methods such as buses and trains. Regulation in the taxi industry comprises of both economic
and social regulation. Economic regulation refers to price controls for the taxi service and
regulation of the market structure such as limiting the entry of taxi companies. Social regulation
aims to tackle externalities that may arise from the economic activity of taxis such as congestion,
pollution and imposing insurance requirements along with safety standards (Viscusi et al., 2005).
Dempsey (1996) stated that regulation, in American taxi industry ranges from limited entry,
price control, and service standards, thus resulting in an ossified industry. All of this forms of
regulations imposed in the taxi industry aim to solve market imperfection such as imperfect
information and reduce externalities taking the form of congestion, pollution and ultimately
ensure safety for customers. However, excessive regulation coerced by the government can have
adverse effects towards the consumers: imposing entry barriers and artificially restricting the
supply of cabs may grant incumbent firms dominant power, eventually harming consumer
welfare (OECD, 2007). The entry of Uber, a peer to peer platform enhanced primarily by a
digital platform which allowed unconventional practices such as enabling car-owners to become
drivers caused confusion among regulators. Their entrance in this industry, mainly by skirting
regulations which limit entry and impose occupational licensing has undermined the already-
highly regulated taxicab industry.
As the company continues to broaden its scope of operations incumbent taxi firms are
being threatened to be driven out of the market. Moreover, the general suit of complaints being
addressed is in regard to Uber’s safety status. Much has been discussed regarding the insurance
coverage and liability of Uber drivers while they are operating. The penetration of Uber in the
taxi industry has not been widely accepted in Europe, countries like Germany have banned their
presence, on the basis of non-compliance with the regulatory requirements of the industry. Yet,
the state of California took the initiative to accommodate Uber and other companies operating in
similar fashion by permitting their operations in the industry beside existing companies. The
Public Utillity Commission of California (PCUC) defined Uber and homogenous companies as
Transportation Network Companies (TNC). On one hand we see countries embracing such
initiatives and provide tailored regulations, while on the other hand European countries have
opted for tackling such companies via specific regulatory enforcements reasoning that platforms
such as Uber exhibiting non-compliance behavior.
The entry of Uber in the mobility sector has unearthed attention to one of the oldest
debates concerning the Taxi Industry. Many economists examining the taxi sector and the
regulatory framework applied in this industry often debated the degree of regulation. Most
economists support the idea of deregulation when it is properly tailored to a certain extent, thus
not a complete laissez-faire approach (Moore and Balaker, 2006).

5
However, if regulators willingly opted for a scenario where there is absence of regulation
and taxicabs were unlicensed, in such industry then the scenario arises where there is
unconstrained consumer choice. Inherently, this gives rise to a pivotal phenomenon known as
situational monopoly. In terms of the taxicab industry, if one were to hail a taxi in the street, the
passenger would not be able to compare the price and other terms offered by other cab drivers. In
this instance, the driver’s position is characterized by having a de facto monopoly – also coined
as situational monopoly- which may give rise to distorted prices and other externalities (Ogus,
2004). Such justifications, along with the disruption of the dominant position of incumbent firms
attained from limiting entry will be used as a basis of reasoning throughout this study to
highlight the inconvenient truth, that even after regulation, such inefficiencies may arise when
both extreme cases are opted for. To this end, it becomes crucial, both in terms of policymaking
as well as with regard to academic research, to provide insights in light of Uber’s efficient entry
in the taxi industry. This research will add to the existing literature by suggesting policy
recommendations towards the new entrant in the taxi industry
The upcoming part of this research paper has the following structure. Section II, will
highlight the key aspects which set Uber aside from their traditional counterparts. Section III,
will examine Uber’s efficiency in the taxi market in light of economic relevance as well as safety
issues. Followed by Section IV where an analysis on California’s regulatory framework will be
scrutinized as a benchmark for adequate regulation towards the entry of Uber. Additionally,
Section IV will conclude by providing pointers of direction in terms of policymaking on the
basis of the summary of findings, consequently stating the limitations of the scope of this paper
to then highlighting suggestions for further research.
2. Uber’s Peculiarities
Uber Inc. provides a digital platform (mobile-application), connecting independent driver
with passengers seeking a ride (Sundararajan, 2014). The company resembles the premises of
sharing economy, which is often defined as collaborative consumption or peer-to-peer
consumption. This is accompanied by the shift from ownership to access (Bootsman and Rogers,
2010). Nowadays technology has enabled a click of a button to result in a freelance driver – rated
and certified by Uber- to be at your doorstep. Uber’s main pillar is based on ridesharing, where
one may tap into idle assets or otherwise known as slack, to efficiently transform them into
monetized transactions (Allen and Berg, 2014). Civil drivers now find themselves in a position
where they can utilize their personal vehicles as a service. The company positioned itself as an
intermediary in the taxi market; this has seen them adopt the role of a “broker” by facilitating the
exchange of information between drivers and users, eventually resulting in a proper match of
supply and demand. Through their sole operating channel, the mobile app accompanied by a
GPS service which directly connects self-employed drivers with passengers seeking rides just a
click away. The mobile application displays the price of the service, the location of available
drivers nearby, the waiting time, and finally driver’s profile and the rating of other customers to
ensure greater matching effects Furthermore, the payment is also secured through the app via

6
credit or debit card, thus no cash changes hands. As oppose to standard cab companies operating
in the mobility sector, Uber does not own its fleet of cars, and the company’s drivers are
considered self-contractors. Moreover, Uber drivers are allowed to set their own working
schedules, providing more flexible working periods and schedules up to their preferences.
Instead of calling a dispatch cab company or hailing at a cab and waiting in the streets, the
application enables a customer to request a ride and check nearby available drivers via GPS
(Allen and Berg, 2014). Such novel solutions presented by Uber’s business model have caused
controversy regarding its entry into the fortified taxi industry.
3. The entry of Uber in the taxi market
Uber - the ridesharing company, characterized by an innovative and distinct business model
penetrated the highly regulated taxi industry. Although primarily by skirting regulations such as
occupational license, eventually disrupting and undermining the taxi market. The “broker”
position that Uber attained in the taxi industry, on one hand increased the economic efficiency in
the taxi market primarily by decreasing asymmetric information and transaction costs while on
the other hand created pitfalls in terms of safety which can jeopardize consumer’s well-being.
Therefore it is essential to examine the impact of Uber from two different aspects. The following
part of this section will assess the company’s imprint in the taxi market referring to Economic
Relevance and Safety Issues
2.1 Economic Relevance
Generally, the taxi market experiences imperfect information problems. Passengers face
difficulties to ex-ante assess the terms (price or quality) offered by a certain taxi (Moore and
Balaker, 2006).The mobile app, Uber’s sole operating digital platform has the potential to
alleviate certain market imperfections in the taxi industry such asymmetric information in the
rider-driver situation. Moreover, the app can tremendously decrease the transaction costs
incurred when hiring a taxi such as search, information and bargaining costs. This confluence, of
both lowering the transaction costs and asymmetric information can positively impact the taxi
market and eventually increase efficiency.
Seemingly, this section will embark by outlining the phenomenon of situational monopoly
defining its magnitude in affecting traditional passenger. Consequently, determinants regarding
the impact the peer-to-peer app has on the dominant position of incumbent firms will be outlined
in tandem with arguments put forward by taxi regulation laureate Beesley (1973). Finally the
overall impact on current taxi tariffs will be deductively determined based on Uber’s entry.
3.1.1 Alleviation of situational monopoly in the taxi market
A situational monopoly arises in the taxi market, where for instance a passenger seeking
a ride faces no other alternative than the one present with the taxi driver who happens to be the

7
most feasible option available (Trebilcock, 1997). Moreover, a passenger might be obliged to
search for a taxi stand in order to fulfill his transportation needs. Thus, the passenger faces a
scenario where s/he has no other option available, eventually forced to make a choice out of the
situation or location. In this situation the taxi driver is in a dominant position which he can easily
abuse by charging higher prices. A passenger, making use of the Uber app does not see the need
to walk to a taxi stand or wait outside for a cruising cab to show up. By means of the GPS
service, an effective coordination arises where the driver picks up the passenger on the current
location. Not only Uber app offers additional alternative options to a passenger but also the app
displays the price of the trip where a passenger has the freedom to choose accordingly towards
his preferences. Thus, a customer is not forced to accept a service and the price offered from the
first cruising cab. In his famous article “The Problem of Social Cost”, Ronald Coase (1960), one
of the first economists defining the transaction costs as the costs linked with market exchange
stated that:
“In order to carry out a market transaction it is necessary to discover who it is that one
wishes to deal with, to inform people that one wishes to deal and on what terms, to conduct
negotiations leading up to a bargain, to draw up a contract, to undertake the inspection needed
to make sure that the terms of the contract are being observed and so on”
Uber app, embodies all the above mentioned terms to accomplish transportation services,
where in no time allows the passenger to seek for a driver with the price of the trip displayed As
such, perfections in Uber’s business model may have reverberating effects in the industry; the
imperfect situational monopoly position highlighted above may be alleviated to a certain extent.
Uber’s transparent model regarding pricing and two-way rating system where drivers and users
alike rate each other may decrease asymmetric information present in the rider-driver
relationship. With such clarity, the matching effects are more robust which indefinitely lead to
substantially lower search costs and information costs faced by the user, thus resulting in an
efficient supply and demand intersection in the taxi market. Likewise, Uber’s standardized
procedure to ‘order’ a taxi will inevitably also lead to a drop in bargaining costs which create a
Pareto-efficient scenario where consumer welfare is not jeopardized.
3.1.2 Disrupting the dominant position of incumbent firms
Economic regulation such as assigning a specific number of taxi companies to operate or
limiting the number of taxi licenses transfers the exclusive right to perform in the transportation
sector, and may grant incumbent companies a dominant position. The franchise that the
government solicits to the businesses can be easily depicted as exclusive rights for the companies
to operate in the mobility sector. Any maximizing agent situated in this unique position will tend
to restrict output and eventually raise prices which will further jeopardize consumer welfare
(Beesley, 1973). This dominant position attained by incumbent firms would not occur if the
government did not impose entry barriers and restrict the supply, ultimately favoring a specific
number of companies operating in the taxi industry. Yet the decision to regulate must be assesed

8
wholly, the laissez faire approach as mentioned above may lead to excessive competition which
actually is an inefficiency in itself. Consumers are unable to observe or verify the quality of
goods and services due to the decrease in realibility of the industry to provide such symmetries
(Kahn, 1988).
Incumbment taxi firms, well positioned in the taxi market, have no incentives to enhance
the service since they are somehwhat assured that they wont be driven out the market. The entry
of Uber in the taxi market, namely in America, threatened the entrenched firms primarily by
succeding to enable a more convinient and accessible alternative service. The mobile application
heightens information flow between a passenger and a driver primarily by means of GPS service.
The ability to order a taxi has never been this effortless before where the driver is just one click
away. Seemingly, the application has reinvented the taxi experience. As mentioned in the above
section the application de facto decreased asymmetric information faced in the rider-driver
situation since the price is displayed, and the customer has ex-ante information about the trip.
Moreover, the presence of the company in this industry highly increased the availability and the
access of hiring a car, enhanced primarily by the use of internet technology. All of these
elements that Uber application incorporates tend to weaken the dominant position of traditional
taxi companies, ultimately undermining the taxi market.
Nearly four decades ago, M.E.Beesley (1973) the famous economist examining the
regulatory aspects and the characteristics of the Taxi Industry in London stated that:
“One major possibility of beneficial change in regulation, we saw, relates to the creation of a
differentiated plying-for-hire market, with say, two types of the cab. A necessary condition for
both markets to operate efficiently is that the terms of carrying passengers should be known in
advance to customers- the charging scales, terms for extra passengers, time of day differentials,
etc. To protect ignorant customers, this probably requires a regulation specifying that charges
must be displayed clearly by cabs.”
Since 1973, Beesley clearly predicted and envisioned that the presence and birth of a
differentiated cab company would benefit customers on one hand and regulators, on the other
hand, to tailor a customer welfare-enhancing regulatory approach. The presence of Uber in the
American taxi industry apparently offers customers a differentiated, innovative, choice of
alternative transportation. Contrary to regular cabs, Uber operates only through the mobile
application while enabling independent drivers to provide a transportation service. Moreover, the
application benefits “ignorant customers” by displaying all the relevant information regarding
the transportation service thus, no scenario where a cab driver or company can abuse with his
dominant position is prevalent.

9
3.1.3 Reduction of the taxi fee
The manner in which Uber penetrated the taxi industry, primarily capitalizing on
information technology profoundly influenced the price decrease of the taxi tariff. The fact that
the company does not own a taxi fleet can undercut considerable costs as opposed to regular taxi
companies who do own their vehicles, highlighting the shift from ownership to access.
Moreover, the company does not have to incur costs like depreciation and maintenance of
the vehicles since Uber drivers make use of their personal vehicles to carry passengers. The
company merely serves as a medium for facilitating the exchange of information between
passengers and independent drivers. In doing so, Uber effectively matches passengers with
drivers while lowering the transaction cost ultimately leading to greater information symmetry.
Additionally, the fact that Uber makes use of independent contractors entails that
uniformly compensating drivers is unfeasible. Uber has allowed the role of drivers to change
within the market, correspondingly, they are able to determine their own working schedules and
thus get rewarded on their initiative to capitalize on such flexibility. In this sense, they are
rewarded via commission as they receive eighty percent of the fee incurred by passengers, while
the rest goes to the company. Hence, Uber has successfully managed to avoid substantial costs in
providing a transportation service that is reflected in a price which is fair for riders.
In the American taxi industry, every driver is required to operate under the Medallion
license; a taxi permit. The Medallion merely serves as a contract between the regulatory
authority and the driver enabling the operator to enter and transport a passenger in the
transportation sector. This particular type of license to operate is usually issued periodically
under a limited quota on account of profitability, population, and ridership. Furthermore, the
medallion can be used as collateral by the driver to ensure compliance with the assigned
regulatory framework (Gallick, 1987). Notwithstanding, the Medallion can be utilised as an
indirect mechanism to restrict the supply of taxis. The limitation in the issuance of this license
has tremendously affected the price of acquiring one. In April 2013, the value of a medallion
reached the record high of $ 1.3 million but shortly after some months fell to $ 8400,000, the
first decrease in value in the history. This drop in occupational licensing portrays that the
American taxi industry is undergoing tremendous revelations since the introduction of services
such as Uber1
. Unlike traditional drivers, Uber drivers are operating without a Medallion, which
can save an enormous amount of capital. Moreover, they do not see the need to incorporate the
expenditure of the medallion in the price of their service, thus providing a low-cost one.
Additionally, the considerable capital saved from not acquiring the Medallion could be invested
more sustainably, ultimately resulting in an efficient resource allocation. Indeed, skirting the
1
Caruthers, E. (2015, March 3). Is Uber crushing NYC's taxi industry? Retrieved June 24, 2015, from
http://www.cnbc.com/id/102473287

10
regulatory requirement provided Uber unfair competitive advantage compared to the incumbent
firm, but the main question prevails: Is the Medallion requirement- often seen as an entry barrier-
alleviating market imperfections in the taxi industry?
3.2 Safety Issues
Uber’s unconventional practices of allowing normal car-owners to become drivers, has
raised eyebrows amongst regulators who continuously criticize the safety issues related to Uber’s
service. The mere fact that the company makes use of independent drivers creates shortcomings
in assigning insurance responsibility and liability in case of accidents. Furthermore, the use of
personal vehicles to provide a transportation service creates confusion towards which insurance
policies are in effect while in the event of an accidents. These issues will be addressed
extensively below.
3.2.1 Insurance coverage and liability
Social regulation in the taxi industry aims to tackle externalities as well as ensuring safety
for consumers. Safety takes the form of providing adequate insurance requirements and liability
in case of accidents (Viscusi et al., 2005).
It is widely accepted that certain safety aspects of a taxi service cannot be quickly
determined prior to using the service, for instance insurance coverage. Following the inability to
assess the safety of the service, regulators intervene to ensure safety providing adequate liability
insurance. Furthermore, regulators increase effectiveness by reducing the time and costs for a
customer to depict which service is safe (Eckert, 1970). Crudely put regulators intention is to
improve the quality of the service and ensure safety for the customers by imposing safety
standards and ultimately reducing complexity faced when making such choices.
The intermediary position that Uber expresses in the mobility sector raised concerns
towards the safety of the service. The fact that the company exploits independent contractors is
crucial in determining the insurance responsibility of a Uber driver in case of an accident. Under
a classical prinicpal-agent relationship as in the case where a taxi driver is hired by a cab
company, in the event of accidents or damages caused by the agent, vicarious liability will come
into effect: the taxi company (angent) is responsible for the accident caused by the employee
Cooter and Ulen (2012) in their book discuss the essence of this doctrine:” an employer
will be held to answer for unintentional torts of an employee if the employee was acting within
the scope of [his or her] employment.
Departing from this doctrine, in case of unintentional torts caused by an Uber driver, the
company cannot be liable under vicarious liability since the scope of the company is to facilitate
the information exchange between passengers and independent drivers. Furthermore, as Uber
drivers are considered independent contractors the company may not be held responsible or
liable for the accidents of their contractors while operating.

11
3.2.2 Addressing the Insurance “Gap” pifall
A tragic accident echoed the need to further specify who should be liable and which
insurance policy should cover the costs in case of an accident when an Uber driver is logged on
the app, but not performing their service nor being requested for a ride. This time span when a
Uber driver is operating is referred as the “Gap” period, creating a crack in the insurance
coverage. This gap creates confusion regarding which form of insurance policy should be
imposed: personal automobile or commercial automobile insurance. Personal automobile
insurance does not take into account coverage when a person is providing transportation for a
fee, thus basing the coverage on the personal use of the vehicle, not for commercial purposes.2
In
essence, a Uber driver when logged on in the app is available to provide commercial service
whether or not he is carrying a passenger.
On December 31, 2013 in San Francisco, an Uber driver was involved in a tragic accident
resulting in the death of the 6-year old girl. The driver was cruising around San Francisco, during
the “Gap” period when fatally struck the girl. The family of the 6-year-old girl filed a lawsuit
against the driver and the company alleging wrongful death and negligent driving. Initially, the
company denied being responsible and providing insurance coverage for the accident, stating
that the driver was not performing a service since he was not carrying a passenger and was not
requested for a trip3
. This denial of responsibility reflects the hazardous exposure of the drivers
and third-parties when operating during the gap.
Shortly, after this fatal accident, Uber took the initiative to cover this gap and further
expanded the insurance coverage. In March 2014, Uber provided a new insurance policy to
tackle this discrepancy. The new policy enabled “contingent coverage for a driver’s liability”
with the specified requirements: $50,000/individual/incident for bodily injury, $100,000
total/incident for bodily injury and $25,000/incident for the property.When a driver’s personal
insurance is not in effect, and the driver has switched on the app, this new policy activates4
.
The “Gap” clearly reflected that Uber’s own insurance policies were not adequate to
ensure safety under every circumstance when an independent contractor is operating. The tragic
accident emphasized the need for regulators and the company to provide an adequate insurance
package. Yet, a similar type of accident due to negligence can occur in regular cabs. The
distinctive modus that Uber is operating should not be considered as hazardous when insurance
2
Coleman, B. (2014, June 30). The New Importance of ‘For Hire’ Exclusions in Personal Auto. Retrieved June 24,
2015, from http://www.claimsjournal.com/columns/burkes-law/2014/06/30/250763.htm
3
Williams, K., & Alexander, K. (2014, January 28). Uber sued over girl's death. Retrieved June 24, 2015, from
http://www.sfgate.com/bayarea/article/Uber-sued-over-girl-s-death-in-S-F-5178921 .php#photo-5637154
4
Bercovici, J. (2014, March 14). Uber Closes 'Insurance Gap' For Ride-Sharing Drivers. Retrieved June 24, 2015,
from http://www.forbes.com/sites/jeffbercovici/2014/03/14/uber-closes-insurance-gap-for-ride-sharing-drivers/

12
requirements aim to provide a secure service. Indeed, this distinctive modus created gaps and
discrepancies in providing safety for customers and third parties, but Uber’s intervention showed
that there is an adequate remedy. With efficient and appropriate insurance policies, Uber can
provide a safe service without jeopardizing public safety.
3. California’s Regulatory Framework
The section below uses the case of Californian Public Utility Commission as anecdotal
evidence.
The state of California, is widely known for its welcoming approach towards new
innovative firms. During its initial stage of operating the company was not highly accepted by
the government of California. In October 2010, the Public Utility Commission of California
issued a cease and desisted order towards the enterprise, freezing all its operations5
. Moreover,
Uber drivers lacked the adequate permit and license to operate as a transportation provider6
. The
same state, in 2013 decided to provide a regulatory framework to Uber and other companies
operating in the same manner as they recognised the company’s innovative aspects and
economic relevance in reducing certain mishaps.
The decision of the CPUC to tailor rules and regulations especially for these innovative
new entrants in the mobility sector (TNCs), aimed to ensure public safety and simultaneously
attempting not to obstruct innovation. The CPUC clearly highlighted the protection of the
consumers not to be encroached by the entrants thus, finding a middle ground between providing
safety and not stifling innovation.
The commission referred to Uber and other companies operating in similiar fashion as
Transportation Network Companies (TNC)’“an organization whether a corporation,
partnership, sole proprietor, or other form, operating in California that provides prearranged
transportation services for compensation using an online-enabled application (app) or platform
to connects passengers with drivers using their personal vehicle” The definition generated by the
Commission highlights the distinctions between normal cabs and TNC’s: prearranged
transportation service, use of an online-enabled platform and drivers using their personal vehicle.
Hence, the Commission created a separate category for this particular transportation companies
and clearly differentiated them from normal taxi cabs.
5
Graves, R. (2010, October 25). Uber’s Cease & Desist. Retrieved June 24, 2015, from
http://newsroom.uber.com/2010/10/ubers-cease-desist/
6

13
The following part of this section will examine the main areas that the commission covered:
safety and insurance along with regulatory requirements.
3.1 Safety and Insurance
The primary aim of the commission is protecting public safety and in the meantime
motivates innovators to further enhance the lives of Californians by making use of the
technology. The CPUC clearly specified vehicular and driver’s safety requirements. Any TNC is
requested to retain commercial liability insurance supplying not less than $1,000,000 (one
million dollars) per incident coverage, and any TNC driver is obliged to prove possession of both
commercial and personal insurance since the drivers make use of their personal vehicles to
provide a commercial service.
It is strictly required for all the digital platform companies to possess commercial liability
policies to perform transportation service. The insurance should provide coverage when the
driver is carrying a passenger and meanwhile when the driver is picking up a passenger upon
request. To be mentioned is the fact that the CPUC did not anticipate to ensure coverage from
this insurance in during the “Gap” period.
Regarding the recruitment of a TNC driver, the commission explicitly required any TNC
to perform criminal background checks on the job candidates prior providing a service. To
ensure public safety the CPUC exempted any candidate “who has been convicted within the past
seven years of driving under influence of drugs and or alcohol, reckless driving” and other
felonies which could jeopardize public safety. The driving record of any potential applicant
should be requested by the TNC prior performing any transportation service, and it’s the duty of
the TNC to set a driver training for the driver, prior offering transportation service. Regarding
the vehicular safety, a TNC must inspect the driver’s vehicle prior he provides a service for an
establishment licensed by the Californian Bureau of Documentation
3.2.1 Regulatory requirements
The CPUC stated that any TNC willing to operate in the Californian transportation sector
has the duty to apply for permission to the commission. The commission thus decides the
authorization of the TNC. Therefore, the CPUC has the only right to issue licenses of TNC’s
which will further enable the commission to tackle externalities like congestion and pollution
that can arise from a high number of TNC licenses operating. With the primary intention to
differentiate the modus operandi of normal cabs with TNC’s, the commission required that any
TNC driver should be able to proceed on the condition that he accepts rides only on a
prearranged basis, prohibiting the acceptation of street hails. The prearranged basis can solely be
exhibited through the digital platform (mobile-app). Moreover, the mobile-app should display for

14
the customers a picture of the pickup driver, a photo of the pickup driver’s vehicle together with
the license plate number.
Another distinctive requirement refers to the appearance of TNC vehicle. The
Commission requires that each TNC car should display a distinctive sign, logo or trade dress
when providing a TNC service. Furthermore, the type of the vehicle that can operate under a
TNC license must be coupes, sedans or light duty vehicles with the inclusion of vans and
minivans. TNC drivers must hold a viable Californian driving license, not less than 21 years old
and must have at least one year of driving experience. The records of potential drivers should be
obtained before the driver can operate.
The CPUC clearly depicted economic benefits of this nascent industry and further
awarded the innovative new entrants in the taxi industry with the appropriate regulatory
framework. California intervened primarily to ameliorate the problems and complications of the
new arrivals mainly being the insurance requirement and regulatory requirements. In doing so,
the commsionn , ultimately would ensure safety to the Californian citizen.
4. Conclusion and suggestions for further research
The aim of this research was to provide insight in light of Uber’s efficient penetration in
the taxi industry. Albeit, the company differentiates itself on the basis of access over ownership
from regular taxi operators. Uber reflects the premises of the Sharing Economy primarily
achieved by the use of independent contractors making use of their personal vehicles to provide
transportation services. Purely enhanced by a digital platform, the company situated itself as a
medium in the taxi market, facilitating the exchange of information between passengers and
drivers. It seems, that the entry of this innovative and distinct business model had a two folded
effect – increasing efficiency due to its peculiarities yet certain fallbacks in terms of insuring
safety.
Throughout the study, it is evident that Uber, increased efficiency in terms decreasing
asymmetric information in the rider-driver situation, decreasing transaction costs encountered in
hiring a taxi, eventually alleviating the situational monopoly phenomena and disrupting certain
aspects of the dominant position of incumbent taxi firms. Moreover, the company succeeded in
lowering the price of the service, mainly attributed to capitalizing on information technology.
Notwithstanding, such ground gained in the industry reflected that Uber along with the increase
in efficiency in the taxi market overlooked the fact that they needed to ensure certain safety
benchmarks. The Insurance “Gap” clearly highlighted the fact that the company’s insurance
policies were not adequate to ensure safety. Nevertheless, the “Gap” eventually was filled by
providing effective insurance policies aiming to ensure safety under every circumstance when a
driver is operating.

15
The scope of this study was limited in assessing future outlook of the industry. However,
as an extension on existing literature, this study has differentiated itself in approaching this
matter from situational monopoly terms and in suggesting policy recommendations towards
embracing models such as of Uber. To ensure the flourishing of a cooperative relationship
between government and platform providers, as a policy recommendation I suggest that a form
of co-regulation focusing on the areas where the company created shortcoming such as the
Insurance “Gap”. Moreover, applying the same regulatory framework as the taxi industry would
stifle Uber’s innovation and efficiency in the transportation sector. Additionally, including the
company in a distinctive regulatory frame, thus allowing it to operate along with their traditional
counterparts as the Californian case, will eventually increase efficiency in the taxi market. I
believe that somewhat of middle ground should be reached between regulators and platform
providers. This will ensure that all stakeholder issues are addressed, while proactively addressing
the collaborative attitude being displayed through apps such as Uber. The government of
California ensured that they were early adopters of such a co-regulative approach, and I believe
that this could effectively spillover to promoting refurbished policy in such active markets. Such
approach will establish viable feedback channels where one may report progress of such
platforms. Likewise, soliciting the interest of public and private actors will allow the continuous
reevaluation of such models, ensuring that regulatory frameworks are rapidly adjusting to the
growing volatility of sectors within the Sharing Economy (Cannon and Chung, 2015). As a
suggestion for further research, I believe that broader studies needed to assess the impact of rent
seeking behavior and pressure groups in influencing regulations in the taxi industry.

16
References
Allen, D.,& Berg, C. (2014). The sharing economy: How over-regulation could destroy
an economic revolution. Retrieved June 23, 2015, from http://ipa.org.au/publications/2312/the-
sharing-economy-how-over-regulation-could-destroy-an-economic-revolution
Beesley, M. E. (1973). Regulation of taxis. The economic journal, 150-172.
Bercovici, J. (2014, March 14). Uber Closes 'Insurance Gap' For Ride-Sharing Drivers.
Retrieved June 24, 2015, from http://www.forbes.com/sites/jeffbercovici/2014/03/14/uber-
closes-insurance-gap-for-ride-sharing-drivers/
Botsman, R., & Rogers, R. (2010). What’s mine is yours. The Rise of Collaborative
Consumption.
Cannon, B., & Chung,H. (2015). A Framework for Designing Co-regulation Models
Well-Adapted to Technology-Facillitated Sharing Economies. Santa Clara High Technology
Law Journal, 31(1),23.
Caruthers, E. (2015, March 3). Is Uber crushing NYC's taxi industry? Retrieved June 24,
2015, from http://www.cnbc.com/id/102473287
Coase, R. H. (1960). Problem of social cost, the. JL & econ., 3, 1.
Coleman, B. (2014, June 30). The New Importance of ‘For Hire’ Exclusions in Personal
Auto. Retrieved June 24, 2015, from http://www.claimsjournal.com/columns/burkes-
law/2014/06/30/250763.htm
Cooter, R., & Ulen, T. (2012). Law and economics. (6th
ed.) Boston: Pearson/Addison-
Weseley.
Dempsey, P. S. (1996). Taxi Industry Regulation, Deregulation, and Reregulation: The
Paradox of Market Failure. University of Denver College of Law, Transportation Law
Journal, 24(1), 73-120
Eckert, R. D. (1970). Los Angeles Taxi Monopoly: An Economic Inquiry, The. S. Cal. L.
Rev., 43, 407.

17
Gallick, E. C., & Sisk, D. E. (1987). A reconsideration of taxi regulation. Journal of Law,
Economics, and Organization, 3(1), 117-139.
Kahn, Alfred E. (1988), The Economics of Regulation: Principles and Institutions,
Cambridge, MA, MIT Press, 559 p.
Moore, A. T., & Balaker, T. (2006). DO ECONOMISTS REACH AConclusion?.Econ
Journal Watch, 3(1), 109-132.
OECD (2007). Taxi Services: Competition and Regulation.;1; Policy roundtables,
Competition law and policy
Ogus, A. I. (2004). Regulation: Legal form and economic theory. Bloomsbury
Publishing.
Trebilcock, M. J. (1997). The limits of freedom of contract. Harvard University Press.
State of California, 2013, “Decision Adopting Rules and Regulations to Protect Public
Safety While Allowing New Entrants to the Transportation Industry”, California Public Utilities
Commision.
Sundararajan, A. (2014). Peer-to-peer businesses and the sharing (collaborative)
economy: overview, economic effects and regulatory issues.Written testimony for the hearing
titled The Power of Connection: Peer to Peer Businesses, January.
Geron, T. (2013, September 19). California Becomes First State To Regulate Ridesharing
Services Lyft, Sidecar, UberX. Retrieved June 24, 2015, from
http://www.forbes.com/sites/tomiogeron/2013/09/19/california-becomes-first-state-to-regulate-
ridesharing-services-lyft-sidecar-uberx/
Williams, K., & Alexander, K. (2014, January 28). Uber sued over girl's death. Retrieved
June 24, 2015, from http://www.sfgate.com/bayarea/article/Uber-sued-over-girl-s-death-in-S-F-
5178921 .php#photo-5637154.
.

To what extent is the entry of Uber Inc

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to To what extent is the entry of Uber Inc

Similar to To what extent is the entry of Uber Inc (20)

To what extent is the entry of Uber Inc