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    Blog articles contributed by Carolyn Castro, and Praveen Narra. Contributor URL: Praveen Narra
    By: Steven
    Posted on: May 18, 2017
    Veteran's Day

    Transportation Network Companies (TNC) are companies that use online-enabled platforms to connect passengers with drivers. While connecting passengers with drivers is nothing new in the for-hire vehicle (“FHV”) industry, the use of high tech software to do so is a more recent phenomenon. The TNCs initially sparked controversy with the FHV industry because TNCs came into the marketplace, especially in New York City (“NYC”), and operated illegally for such a long period of time. During this period of time, when the TNCs operated without license and without being subject to regulation, gave them an unfair advantage. Regulations, especially in NYC, are costly and very burdensome. Some regulations are good because they protect the public, but others are nothing more than bureaucratic red tape that is created and used to justify the existence of certain people who are employed by the governmental regulatory agency. In NYC, the Taxi and Limousine commission (“TLC”) has become an albatross crating regulation upon regulation, much without any need or justification. These regulations place the traditional FHV’s (car services, luxury limousines, clack cars, etc.) in a world in where they are not permitted to operate outside of. When Uber first hit the scent in NYC, they claimed to be a technology company and not a transportation company. Time has proven that Uber and other TNC’s are surely transportation entities, albeit very sophisticated ones. But the TLC regulators in NYC bought into the Uber Kool aid and let them operate for so long and without any restrictions to the point that once they came under the regulatory umbrella of the TLC, they already created a massive network of users that is virtually impossible to duplicate. Putting aside, for the moment, that the TNCs have billions of dollars to literally buy drivers, subsidize rides for passengers and pay of politicians (oh…sorry…I mean donate to their political reelection campaigns). The lack of regulation of the TNCs and the unconscionable delay of the TLC in regulating the TNC’s created an unfair competitive advantage that, at this point in time, has caused the demise of the taxi industry in NYC. The taxi industry deserves some fault in their demise because they refused to innovate by embracing new technology and/or because they refused to see that technology would one day be used to provide a similar but better service that would eventually lead them down the path of the dinosaur (i.e. extinction). I focus this piece on the effects of the TNCs upon the taxi industry and not the rest of the FHV industry in NYC. I do this because while the TLC does regulate all FHV’s, the NYC government has a massive financial interest in the taxis and since the advent of the automobile, the taxi medallion was sold to investors with the virtual guarantee that money would be made. Today, the City of New York and its elected leaders have turned their backs on the taxi owners and the banks and credit unions that lent money to the medallion buyers. They are all failing and the City of New York takes the hands-off approach, not because they want the free market the rein and work out the kinks, but because the elected leaders have a financial interest in seeing the TNCs prevail. Remember, TNCs bring in a massive amount of money via sales tax. While TNC’s provide transportation in areas of New York state where less than desirable and plentiful transportation was previously available, the focus of this piece is on the NYC market because taxi medallions in NYC are like no other taxi in the world.

    No one can deny at this point in time that TNCs generally have shorter wait times, cheaper prices, and increased convenience, aspects that appeal to consumer preferences. But keep in mind that the cheaper prices are mainly due to subsidies from each TNC that artificially lowers the cost of the trip. Once the taxis and other FHV’s are driven out of the market, what do you think the TNC’s will do with their prices. If you think they will keep prices the same, you are sorely mistaken. Also, increased convenience is due to the fact that TNCs can afford to pay driver subsidies. These subsidies put more money directly in the pockets of the FHV drivers. Once the taxis and other FHV’s are driven out of the market, what do you think the TNC’s will do with their driver subsidies. If you think they will keep paying subsidies to drivers after the marketplace for competition has significantly decreased, you are sorely mistaken. Once the driver subsidies are gone, the drivers may seek alternate jobs b3cause as it is now, some drivers are actually making a bit more than minimum wage. The benefits of driving for a TNC are illusory……..but the public simply ca not yet see the forest from the trees. TNCs have billions of dollars to burn and will keep burning them until the competition is driven from the marketplace. When competition is significantly lessened or extinct, then a monopoly is created. Remember, the U.S. Supreme Court broke up Standard Oil over 100 years ago because monopolies are a bad thing.

    Since the emergence of the TNCs, the taxi industry fought to increase TNC regulation, but has done little to create innovative technology and had done nothing to modify its service to appeal more to consumers. Why stand in the street like an idiot and wait to hail a cab when you can use your smartphone, which you were already probably using, to virtually hail a cab, but instead of hailing a yellow cab, the public is virtually hailing an Uber.

    In NYC, the night takes on a different meaning. Dinner turns into drinks, drinks turn into the club, and the club turns into wherever the night ends. Instead of spending an arm and a leg on metered city parking or waiting to hail an overpriced taxi, partygoers now catch a ride with Uber and/or Lyft. The TNCs appeal not only to partygoers, but also a wide range of other groups including families, businessmen, and travelers. An innovative blend of technology, transportation, and low-cost convenience, Transportation Network Companies (TNC) appeal to the interests of all people with a smartphone, which is virtually everyone. TNCs utilize three major technologies: GPS navigation, smartphones, and social networks, each serving a distinct purpose. GPS navigation systems provide ride efficiency in both distance and time, smartphones allow for convenience and accessibility, and social networks build trust and accountability for both the drivers and the riders. These companies operate similar to a taxi service, however they differentiate in that TNCs use online-enabled platforms to connect riders to. Providing a service called “ridehailing”, the user-friendly apps operate with only one click, locating not only the location of the potential rider, but also the density of drivers nearby and the wait time for the closest driver. They also provide driver information and a method of contact in order to arrange the one-time ride. The payment system is simple—price is calculated with respect to speed and distance, and customers are billed directly, with receipts sent via email. Convenient and fast, these apps remove stress from both the driver and the rider, providing a very strong incentives for riders to switch from taxis to TNCs.

    However, accompanying all their success, TNCs confront controversy and outrage from the taxi industry. Even though TNCs promote their service as a way to fill up empty seats in passenger cars, they function similarly to a taxi service, and as such, they are a massive threat to traditional taxicab drivers competing for the same consumer base. The biggest complaint the taxi industry has is that TNCs operate without proper regulations, avoiding the licensing costs, driver insurance, standard employee training, and routine background checks that taxi drivers are subjected to. Taxi drivers argue that since TNCs and taxis serve an almost identical purpose, they should have the same restrictions and costs. This argument surely makes a great deal of sense. But the law does not always keep up with the times and the law will always be behind advances in technology. As such, legal action against TNC’s and the government relators have failed. In the end, TNCs have acted as a price and quality substitutes for taxicab service and thus have lead us all down the path of elimination of the taxi industry.

    Similar in method of transportation, TNC services follow a point-to-point route of travel; therefore these services are often perceived as entrants in the taxi market. However, there are contesting opinions on the debate between taxicabs and TNC services. Supporters of the latter service claim that TNCs such as Uber and Lyft fulfill a previously unmet demand of quick and convenient mobility, as TNC services require as little effort as the tap of a button. This opinion suggests the consumer base of TNCs is not identical to that of traditional taxicabs. Instead, people entered this transportation market specifically due to the unique and convenience of app-based mobility. In opposition, critics claim that TNCs serve identical roles as taxi drivers, but without proper regulations that are used to counteract negative externalities such as “job misconduct” in taxi services. While some may believe TNCs and taxicab companies operate differently, I believe in equality and that TNCs should be regulated the same as other FHVs. To do otherwise may not be illegal, but it is surely a distinction without a difference. My prediction is that in the long term, TNCs will be fatal to the taxi industry, acting as a substitute and not a complement.

    Regulations are used to be favorable for taxi drivers. Generally speaking, government regulation is implemented because it is demanded by the regulated industry and provides favorable gains for the industry. Economic regulations in taxicab markets exist because of the presence of negative externalities such as air quality, traffic congestion, and asymmetric information. With an unlimited amount of taxis, quality is bound to decrease which is bad for the consumer and incentivizes taxi companies to cut corners when it comes to costs such as vehicle maintenance. Favorable to cab companies, government regulation theoretically allows for higher fares than those that would exist in the free marketplace. Regulation of Taxis and other FHV’s is fine, but when all other FHVs are heavily regulated and TNCs are not regulated or regulated with minor disruption, then there will be an oversupply of drivers and the devaluation of taxi licenses. This is exactly what happened in NYC.

    While it still claims to be simply an app-based technology rather than a transportation company, Uber is essentially a modernized version of the traditional taxi. Operating free of regulations, Uber and similar companies compete against the taxi industry at a lower cost, making each ride cheaper for the consumer and more profitable for the business. The increase in supply makes each taxi medallion license lower in value and each taxi driver less profitable.

    By nature, TNC apps have an advantage due to accessibility. With the exception of upfront costs such as the purchase of a smartphone device, these transportation apps are free to download and easy to use. In order to reach a driver, a rider simply opens his app and taps “set pickup location.” The app uses GPS services to locate the exact location of a smartphone, send the location and contact information to the nearest driver, and notify riders of the remaining time before a car arrives. Fast, reliable, and efficient, TNCs take the guesswork out of transportation. One of the top reasons people use a TNC service is the ease of payment. TNC’s provide an added convenience by allowing consumers to pay directly from their phones. At the end of a trip, the rider is billed directly to a preset card in the app, and both parties are ensured that payment has been received. For some, this method of payment is definitely preferable, however it is less attractive to others. The perception of these services is likely to be linked to the use of technology, and younger populations associate technology with efficiency. Older generations who have not grown up in a technological world are often less trusting of online payment methods, generally find it more convenient to pay manually at the end of a trip, with the option to use alternative forms of payment. But the baby boomers are getting older and older and the millennials are soon going to be running the major corporations of the world.

    At the very least, TNCs have provided consumers with the freedom of choice. These companies expanded quickly and have made an impact within a matter of years, however this impact is not solely positive. Although TNCs have the potential to improve welfare for some individuals, it is likely to be at the expense of others. To gain a thorough understanding, it is important to weigh the costs and benefits associated with the eventual demise of the traditional taxicab and the taxi driver.

    While my opinions on the impact of TNCs on the taxi industry is not conclusive, it does lean towards one particular outcome. The combination of minimal regulation, low prices, short wait time, and certain preferences gives TNCs an enormous advantage over taxis. And although TNCs have come under fire recently, the barriers to entry have been and remain relatively low. Additionally, the new age of technology refuses growth to taxicab companies, who have made few technological changes throughout the years. Despite their success, TNC’s continue to find new ways to innovate. Recently, Uber introduced UberPool, a carpooling services that allow riders to share rides and split costs with others traveling a similar direction. Uber has also introduced Uber for Business and UberRush, each with features that appeal to different demographics. Assuming that TNCs continue to function under current circumstances, I predict they will drive out the taxi industry.

    The taxicab industry is heading towards extinction; but I believe that certain modifications could change its direction. First, regulation for TNC must be the same as other FHVs. Without the same level of regulation, taxicabs and TNCs are competing for a similar consumer base on uneven playing fields. Next, taxis must improve their technology and communication methods—an update that is long overdue. By evolving with the general population’s interests, the taxi industry is more likely to be successful. It would be beneficial to create an app similar to those created by TNCs. Lastly, the taxi industry must seek innovative ways to re-recruit riders. Taxis have the advantage of time and experience, and unlike TNCs, they have been around for over a century, surviving through the darkest economic times. In order to stay competitive with a company like Uber, taxi companies must be innovative and strategic in their methods.

    Since their inception six years ago, TNCs have already made a significant impact on the taxi industry. These companies entered the market without the restrictions and regulations that serve as barriers of entry for traditional taxicab drivers. As a result, this advantage allows TNCs to operate with lower costs, and therefore provide better prices to consumers. Like all other service-oriented industries, the transportation industry is reliant upon consumer demand. Riders will always choose the service that provides them with a higher utility based on individual preferences. For transportation, the top three preferences are variations on speed, convenience, and low pricing. Weighing the evidence, I predict that TNCs will eventually cause the taxi industry to go the way of the dinosaur. Despite the odds, traditional taxicabs do have the power to stay competitive as long as changes are made. Unfortunately, the odds of such change being made is minimal, if at all. The elected leaders in NYC and New York State are heavily in favor of TNC’s and governor Cuomo’s budget bill that legitimized Uber all across New York State will cause the demise of taxis throughout the state. Time will tell, but one thing I believe for sure is that while the needs and desires of the marketplace created an opportunity for TNC’s, the elected leaders of NYC and New York State have turned their backs on traditional FHV operators. And remember, these FHC operators in NYC who are now facing foreclosure and extinction are the ones who provided transportation in NYC at a time and place in history when it was not so pleasant to do so. (i.e. remember the crack epidemic of the 1980’s and the scene on 42nd Street before Rudy Giuliani came to town). Also, many traditional FHV operators are immigrants who came to this country to live out the American dream. For decades, immigrants lived out the American dream and used their taxi medallions to pay for their kids to go to college. Now, these same immigrants are facing foreclosure of their taxi medallions and financial ruin, all because the NYC regulators failed to do what they were supposed to do in the first place, which is to regulate for-hire vehicles, including Uber. The regulators failed in their jobs and the effects of such failure, whether good or bad, will not be fully known for decades to come.

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