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As Competition Between Lyft and Uber Grows, Questions Linger About Disruption

R. J. Lehmann

Cofounder, R Street Institute

As Americans become more familiar with the concept of “ridesharing,” things are heating up in what the Wall Street Journal last week dubbed the “fiercest battle in the tech capital,” between Uber and its largest competitor, Lyft.

The Journal piece portrays a “bitter war,” featuring “two heavily financed upstarts plotting the demise of the taxi industry—and each other.” The campaign is mostly being waged in the marketplace, with the two firms competing over price, pick-up times, drivers and services offered. But there are also some allegations of dirty tricks:

A Lyft spokeswoman said Monday that representatives from Uber have abused its service in the past several months with the goal of poaching drivers and slowing down its network. Passengers who identify themselves as working for Uber frequently order a Lyft and then ride for only a few blocks, sometimes repeating this process dozens of times a day, she said…A spokeswoman for Uber denied the company is intentionally ordering Lyft rides to add congestion to its competitor’s service.

Competition is at the heart of capitalism, but some might question the wisdom of devoting so much energy to fighting one another when a common set of opponents lurk: regulators, lawmakers and the special interests who have their ear.

In city after city and state after state—from Pittsburgh to Seattle, and Nevada to Virginia—municipal taxi authorities and public-transit commissions have been cracking down and shutting down ridesharing services with claims that they violate rules governing the licensing, insurance, vehicle types, payment systems and handicapped accessibility required of for-hire taxi or limousine services. In some places, the services have managed to carve out at least temporary accommodation, but much work needs to be done if transportation network companies like Uber, Lyft, Sidecar and smaller upstarts like Summon and Wingz are to grow and thrive.

The first and most important question will be the TNCs’ contention that they are “information content providers” (in other words, publishers) and thus should be held immune from most liability under Section 230 of the Communications Decency Act of 1996. The argument is that, like dating sites, the TNCs merely match potential riders and available drivers.

It’s still not certain if the courts will see it that way. Uber already has been sued in a case charging vicarious liability for the behavior of one of its drivers, a charge that usually only would apply in an employer-employee relationship. More recently, an UberX driver was arrested following a fatal New Year’s Eve accident in San Francisco, a case that has become a centerpiece of the California regulatory debate this year.

Among the questions courts will have to weigh is the extent to which the TNC transactions are held at arm’s length. Uber provides a centralized pricing algorithm for its drivers, including the well-publicized “surge pricing” intended to draw more drivers to areas experiencing service shortages. This contrasts with Sidecar, which allows drivers set their own prices and lets consumers choose among nearby drivers. Lyft has implemented its own version of surge pricing, but more recently has experimented with the reverse: “happy hour” pricing with cut-rate fares when a surplus of drivers are on the road. Add to these considerations that Lyft and Sidecar formally regard payments to their drivers as “donations” that are always optional and negotiable.

Why does this matter? Because the more “tools of the trade” the services provide to their drivers—whether pricing algorithms or GPS devices or even the pink moustaches that adorn the fronts of cars operated by Lyft drivers—the more they potentially undermine their Section 230 defense. This may extend even to steps the firms already have taken to accommodate safety and insurance concerns, including beefing up their screening and background-check processes and purchasing commercial insurance to cover their drivers’ liability.

These are the kinds of thorny issues that could torpedo progress on the regulatory front. It’s obviously essential that TNC firms continue to offer the best services at the best prices, which is the only way to build a constituency who will demand regulators allow the companies to operate. But it also would probably be wise for the nascent industry to begin thinking about best practices that demonstrate they can agree to at least some common solutions.

Toward that end, it has been good to see the emergence of Peers, a nonprofit dedicated to taking on issues common to the sharing economy. Lyft also has taken the lead by founding the Peer-to-Peer Ridesharing Insurance Coalition, which could provide a needed dialogue with the insurance industry to develop new products that better fit the kinds of risks that ridesharing presents.

As my colleague Andrew Moylan and I argue in a recent paper, the peer-production economy holds the potential to free billions in trapped and underutilized capital and spur economic growth. But even as these innovative firms look to best each other in the market, they also must work together to keep regulators from strangling their industry while it’s still in the cradle.

R.J. Lehmann is senior fellow, editor-in-chief and cofounder of the R Street Institute

R. J. Lehmann

Cofounder, R Street Institute

R.J. Lehmann is senior fellow, editor-in-chief and cofounder of the R Street Institute.