On June 24, 2014 the Transportation Committee of the New Orleans City Council met to begin discussions on ordinance changes to the luxury vehicle section of the for-hire vehicle code. The primary changes proposed in the current version of the ordinance updates include: 1) removing the requirement that luxury vehicles (limos, sedans, and SUVs) must be reserved for 3 hours, and 2) changing the minimum required fare structure from $105 to 3x the taxi base fare. The new minimum fares would be $25 for sedans, $35 for SUVs, $75 for trips to/from the airport, and $90 for SUV trips to/from the airport.
In addition, the code would be updated to allow for luxury vehicle companies to use technology, like smartphone apps, to better serve their customers. The taxi code was updated in 2012 to allow taxi companies to use technology. Based on my reading of the current ordinances I don’t see why an update is necessary to allow for this, so I asked representatives in the Mayor’s office for clarification, but have not yet received a response.
Anyway, the headline grabbing piece of this topic is that Uber has requested the city to make changes to the code to allow it to legally operate Uber Black. Uber Black is Uber’s luxury sedan service. As I previously outlined my thoughts on Uber more generally, I’ll limit the remainder of this post to responding to the meeting of June 24.
Ryan Berni, advisor to Mayor Landrieu, started off the meeting by stating that the goal of the city is “to have good transportation options for residents, businesses, and travelers.” Berni went on to say that the city has an obligation to ensure regulations are in place to protect the public. On the surface, these comments sound perfectly reasonable to be coming from the Mayor’s office. However, as the remaining comments during the meeting show, protecting the public is not what will be accomplished by the new ordinance. What will be accomplished is protection of the profits of existing luxury vehicle and taxi companies, at the expense of greater and cheaper options for the public.
According to Mr. Berni, “we need price separation.” In other words, “price separation” means that in order to keep luxury vehicle companies from functioning as taxis and cannibalizing all the taxi business, the city needs to force luxury vehicles to charge higher prices than taxis. Councilmember Head awkwardly requested clarification from Mr. Berni that this did not amount to “price fixing.” While Councilmember Head is technically correct that creating “price separation” does not fit within the definition of “price fixing,” the result is essentially the same. The city, not the market, sets the prices that minimally competing businesses may charge customers, and taxis get to charge lower rates than luxury vehicles so they have a larger customer base to appeal to, and luxury vehicles charge higher prices to appeal to a different, wealthier clientele or serve as a transportation option for special events and occasions.
There are two primary reasons why this arrangement does not serve to protect the public: 1) in general, minimum fares artificially force people to pay more for a service than they otherwise might be able to negotiate; and 2) creating “price separation” limits transportation options for the public.
First, in the absence of minimum fares, customers could negotiate lower prices than allowed by law. Forcing people to pay more than drivers may be willing to charge benefits the bottom line of the vehicle owner, not the customer. Also, to be clear, it is only minimum fares that are being discussed, not maximum fares. The proposed ordinance change removes the ceiling that luxury vehicle companies may charge while setting a floor that they may not go below while negotiating fares. Therefore, minimum fares benefit the vehicle companies, not their customers.
Second, price separation that sets a higher minimum fare limits options for people looking for transportation. If someone can’t afford the legally required minimum fare, they must look elsewhere for a ride. In contrast, if there were no required minimum fare, a vehicle company that is willing to accept a lower fare rather than have no business at all would result in the customer having a ride and the company having a paying customer. Further, minimum fares reduce competition which only further reduces the number of available options. If a new vehicle company is attempting to enter the market, one of the easier methods of acquiring business is to charge lower prices than the existing companies. Since the new business does not yet have name recognition or a reputation, the lower prices they offer allow them to compete immediately. However, if there is a legally required minimum fare, the new company cannot charge less to entice customers, thus fewer new companies are likely to emerge. This result is even more likely to occur in the case of individual entrepreneurs who are considering entering the market with a single vehicle or two.
A brief note on that last point. The current ordinance requires a luxury vehicle company to have at least 2 vehicles. This requirement also does not serve the interests of the public. Instead, it limits competition while benefiting large vehicle companies. If I’m an individual entrepreneur (assume I have acquired the necessary licenses and insurance) who would like to earn some extra money on the weekend by providing rides in a sedan, but the law requires me to own 2 sedans before I may open for business, this arbitrarily limits the number of people who may operate as luxury vehicle companies to those who can either afford to purchase at least 2 vehicles instead of just 1, or to those who are able to access financing for an additional vehicle. In any event, Joe Entrepreneur who has no use for a second vehicle because he can only drive one at a time is left looking for other options for extra cash, and the public is left relying on the larger companies to offer enough vehicles to meet the demand.
In addition, when the minimum fare structure is combined with the 2 vehicle requirement, not only is competition on prices and the number of available vehicles limited, but a barrier to entry is raised for those seeking employment. So, what we’re left with is this: luxury vehicle companies with enough resources to acquire at least 2 vehicles do not have to worry about competitors with a single vehicle charging less than them, and taxi companies don’t have to worry about luxury vehicles charging the same price as a taxi but offering a ride in a nicer vehicle. What about this “legal” arrangement is actually serving the public instead of the interests of the current 20 luxury vehicle companies and the taxi companies?
This is exactly what I meant when I said other motivations are at play than protecting the public. Fortunately, if my above analysis of the dynamics at play isn’t enough, one need only listen to the comments during the June 24 meeting by those in the for-hire vehicle industry to see that they openly advocate for the city to protect their businesses from competition:
Michael Brinks of the Greater New Orleans Limousine Association said that they need the city to protect their ability to charge higher fares.
Chris Bonomolo of Bonomolo Limousines implored the City Council to consider the impact of ordinance updates on the well being of limo drivers. Nevermind the fact that when directly questioned by the Council, Mr. Bonomolo was unable to provide any specifics on how his employees would be harmed.
A representative from Alert Transportation voiced his opposition from having fares lowered because without the legally required minimum fares, it makes it difficult for his business to stay viable.
Mike Wetzel of Big Easy Limos was more explicit when he directly stated that limo companies can’t compete with taxi prices and if competitors are allowed to charge less than the current minimums his company could be put out of business.
Sheree Kerner of Nawlins Cab was concerned that the “price surging” practice of Uber’s ridesharing product, UberX, was synonymous with price “gouging,” yet somehow failed to realize the illogic of her comment when she went on to say that if UberX is allowed to operate in New Orleans, cab companies will be left to serve only non-Uber users and will require subsidies from the city to stay in business. If “price surging” is so bad for customers, Ms. Kerner, why would all the Uber users continue to exclusively use Uber at the expense of cab companies?
The comments go on, but I believe the point is clear. While paying lip service to concerns for the public based on overblown statements of their being less transportation options if the existing companies are actually forced to compete on things like fares, the true concerns of the companies are clear. They need the city to protect them from competition or they might go out of business, or they might have to lay people off, or they might profit less. I suppose you could make the argument that businesses closing, layoffs, and lower profits result in harm to the public. However, where could the line possibly be drawn if protecting the public is now defined as protecting existing businesses from having to function in the world of business? Unless you are a company that is fortunate enough to operate in an industry that can acquire government protection, you are forced to actually compete with other businesses to attract customers. None of the above comments reflect the motivation to serve and attract the people of New Orleans and her visitors.
I realize that this is yet another example of business as usual in New Orleans politics. However, these vehicle companies should be ashamed of themselves for thinking that it is the responsibility of the elected representatives for the people of New Orleans to protect the businesses from competition at the expense of their customers.
The provisions of the current proposed ordinance that remove the 3 hour reservation requirement and explicitly allow vehicle companies to implement technology are improvements that benefit the public. The provisions that maintain minimum fares and the 2 vehicle requirement only serve the interests of the companies. Hopefully, the members of the council, and the members of the public will begin to see the vehicle companies’ claims for what they truly are: self-serving rent seeking and the refusal to compete and adapt to the changing nature of transportation. Whether they like it or not, companies like Uber are not going to disappear. Instead, if existing vehicle companies continue to view their customers as a commodity that they are entitled to by force of law, then we should expect to see competitors like Uber proliferate.