Loved by Consumers, Uber and Lyft Face Regulatory Struggle in Major U.S. Cities (Update)

Sep 3, 2014

In New York, companies like Uber and Lyft have faced regulatory pushback from the city's Taxi and Limousine Commission. Photo credit: Ian Wagreich

UPDATE: A recent survey reveals that economists agree that allowing services like Uber and Lyft to compete on equal footing with traditional taxi services is a good thing, in that competition of this nature benefits the consumer. More analysis on the survey of members of the Economic Experts panel hosted by the Initiative of Global Markets at the University of Chicago from the New York Times.

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If you’ve ever been stranded late at night without a taxi in sight, then you probably don’t need to be convinced that services like Uber and Lyft, which allow consumers to order cars directly from their smartphones, have brought innovation to an industry not exactly known for its efficiency.

Yet for how much positive feedback they’ve received from the general public, these kinds of game changing companies have nonetheless come up against regulatory challenges across the United States—even though their expansions have been fueled by torrid consumer demand.

Take Uber, which was valued at more than $18 billion in June, according to the New York Times’s Dealbook blog. The San Francisco, California-based company, which collects roughly one-fifth of the money generated by each successful ride, also reportedly logged more than $1 billion in gross revenue last year—not bad for a four-year-old startup.

Nonetheless, regulations, many of which are set at the local level, have slowed Uber’s expansion, Travis Kalanick, the company’s chief executive, said in an interview with CNN Money. Fighting back against such rules, he noted, has directly affected its bottom line.

“The taxi industry [is] trying to protect a monopoly that has been granted them by local officials, so they're trying to slow down competition,” Kalanick told CNN Money. “So we try to get the story out there about accessibility of transportation, lower cost transportation, higher quality, and I think that story wins over at the end of the day.”

Uber, which Inc. reported plans to hire more than 1,000 people in 2014, has seen regulatory pushback in a string of cities across the U.S., as well as elsewhere around the globe. We’ve compiled a list of three cities where rideshare companies have had to fight back against onerous rules, even as they have worked to bring their innovative product to enthusiastic consumers.

1. New Orleans, Louisiana

New Orleans remains one of the only major cities in the U.S. that has failed to allow Uber to set up shop. The company has been engaged in protracted negotiations with city officials for more than a year now. At issue, according to Gambit, is an old city rule that mandates luxury sedan rides must charge a minimum fare of $25. The New Orleans City Council has delayed voting on changing the ordinance until the first week in September, even amid increasing support from city residents, more than 2,500 of whom signed a Change.org petition urging city officials to reconsider the regulation.

2. New York City

Uber and Lyft both faced a tough regulatory environment in New York City, as the city’s Taxi & Limousine Commission (T.L.C.) was largely against the introduction of ridesharing services in New York’s tightly regulated livery market. Lyft, which launched this past summer in Brooklyn and Queens, was warned by T.L.C. officials that it didn’t meet safety and licensure requirements, TechCrunch reported. Critics, however, contend that T.L.C. officials hope to keep rideshare services out for another reason, namely the artificial market it has created by limiting the supply of taxi medallions. New York City controls the supply of taxi medallions, which enable drivers to pick up and drop off passengers. Largely because of a limited supply, the price of a taxi medallion has soared over the past few decades, hitting roughly $1 million in 2014, according to Bloomberg Businessweek.

3. Chicago

Opposition has been fierce in Chicago, where Uber and Lyft have been greeted warmly by residents tired of the city’s notoriously shoddy taxi service. Earlier this year, the city’s taxi drivers sued Uber and Lyft, Bloomberg reported, arguing that the companies were operating unlawfully. The lawsuit, which seeks unspecified damages, came on the heels of an announcement by Chicago Mayor Rahm Emanuel that said the city would introduce a number of regulations targeting the rideshare economy, according to the news provider. Though the taxi industry had also pushed for a regulatory framework at the state level, Illinois Governor Pat Quinn recently vetoed the proposed rules, the Chicago Sun-Times reports. While hailed by rideshare proponents, the move places the bulk of regulatory power at the hands of local officials.

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