Ride sharing is good for customers, good for the environment
CalgaryHerald.com
Oct. 29, 2016
Trever Tombe
Last February, Calgary was among the first cities in Canada to pass bylaws allowing Uber and other ride-sharing services to operate. Following the vote, Mayor Naheed Nenshi called it “a modernization of our entire taxi bylaw,” and Coun. Joe Magliocca noted “we’re leaders, not followers.”
The trouble was, council opted to charge each driver $220 per year — a heavy burden on the casual, part-time drivers that ride-sharing services rely on. So Uber never entered. Meanwhile, Edmonton, Toronto, Ottawa and the entire province of Quebec opted for per-trip fees, leaving Calgary to stand alone.
But perhaps not for much longer. A proposal is making its way to council to change the fee to 20 cents per trip — more than Edmonton’s six cents, but less than Toronto’s 30. It also includes improved inspection procedures to treat ride-share vehicles and taxis the same. While subtle, the changes are critical.
In this industry, allowing for casual drivers makes sense. First, demand fluctuates — a lot. We all know catching a cab after midnight on a weekend can be frustrating. With Uber, there’s a reserve army of drivers ready to go. When demand is high, Uber prices rise to attract more drivers and discourage some customers. It’s demand and supply at work, in real time.
Second, full-time cab drivers are often idle. They’re only driving a passenger about one-third of the time. For Uber, the utilization is higher, approaching two-thirds. Recently published research in the American Economic Review — a top journal — finds Uber’s matching technology, its large scale, its surge pricing, and various inefficient taxi regulations all make it much more efficient than cabs.
The resulting consumer gains are real and measurable, both directly from lower prices and indirectly from increased convenience. Recent research by a team of economists, including Freakonomics co-author Steven Levitt, uses Uber’s surge-price offers and acceptances to measure consumers’ willingness to pay, and therefore total consumer satisfaction. Overall, consumers gain an additional $1.50 for each $1 spent.
There are non-monetary benefits too. For each kilometre driven with a passenger, taxis drive 1.5 kilometres empty; for Uber, it’s only half a kilometre. This affects congestion, fuel use, pollution, noise, and so on.
To be sure, the amendment faces resistance. At public hearings last week, the room was filled with concerned taxi drivers. But the largest costs are borne by owners, not by drivers.
Uber’s efficiency allows drivers to charge roughly 30 per cent lower prices, yet earn the same amount per hour. In 2015, the average Calgary taxi driver earned $16.40 per hour, excluding tips. The average UberX driver in the U.S. earns a similar amount, and UberBLACK drivers earn about $5 per hour more. Toronto’s experience bears this out.
For taxi owners, it’s another story. To operate a taxi, you need a special plate, whose supply is heavily restricted. Thirty years ago, there were 1,311 taxi plates; today, there are 1,659. In that time, the city’s population doubled. This artificial scarcity makes plates very valuable. A recent report to the city suggests each is worth $150,000, or as much as $250 million in total. Ownership is also concentrated. Of the 4,000 taxi drivers in Calgary, fewer than one-quarter own their own plate. The rest rent.
But losses to owners is not a foregone conclusion. After all, a liberalized transportation market is not a zero-sum game. Taxi companies can develop their own apps to compete. The resulting lower prices and added convenience grows the market, creating a larger pie, so gains to one need not be losses to another.
Council will make a decision at their November meeting. To ensure we remain one of the world’s most livable cities, and to create a flexible market with gains for consumers and producers alike, council should dispense with protectionism and open Calgary’s transportation market.