Excessive Regulation, Not Lyft, Needs To Stop Operating In Kansas City

As first appearing in the Kansas City Business Journal:

Not long ago, stores such as Blockbuster rented out movies across the nation. Where are they now? Gone, “unwept, unhonored, and unsung,” as former customers stream “House of Cards” on Netflix. But imagine 10 years ago that Kansas City had regulations controlling the supply of video stores and setting rental prices. Imagine that regulations blocked Netflix from streaming in Kansas City, with the city claiming it flouted the law and was not competing on a level playing field.

That story may seem preposterous, but we are dealing with a very similar situation today as Lyft, a new ride-sharing app (smart-phone based application), has upset the highly regulated Kansas City taxicab market.

Lyft, Uber, and other companies like them allow users to schedule a ride from any registered driver in a geographical area. Lyft drivers need not be full-time cab drivers; they can be anyone with virtually any type of car that passes certain background and safety tests. After using Lyft, riders make an optional donation — not regulated fare — to the driver via electronic payment. No cash is needed. Drivers and riders rate each other, incentivizing both elevated service from drivers and generous rider donations. Lyft and other apps are rapidly expanding across the country and have many happy customers where they exist.

Not everyone is happy, however. Chief among the protesters is the Kansas City’s Regulated Industries Division, which regulates all for-hire vehicles in Kansas City. Under the argument of protecting rider safety and maintaining a balance between cab supply and demand, Kansas City controls the number of taxis in the city, how they can conduct business, and what prices they charge. Kansas City has threatened fines for Lyft drivers and has written to the company claiming its actions are illegal.

In the past, one could have argued that potential taxi users had too little information to avoid being ripped off and no way to know which company was safe, so regulation was necessary. Today, the ease of checking fares and cab company records over the Internet and smart phones has solved those problems, but Kansas City officials have not gotten the memo. City ordinances set fares, require potential cab owners to start with a fleet of 10 cabs, limit cabs to less than 600 city-wide, and require cab companies to provide 24-hour service.

These policies ensure that individuals cannot rent out their cars for hire. They also create high barriers for entry into the market, protecting the existing cab companies from entrepreneurial Kansas Citians. These barriers reduce the total amount of taxis available for Kansas City residents and can create especially large gaps between supply and demand during peak demand times, with no flexibility in cab supply and weak incentives for cab drivers to provide more service.

Lyft and other ride-sharing apps allow for a massive increase in for-hire vehicle supply in Kansas City. City residents and visitors would be able to use some of the excess capacity of the cars already owned to greatly increase mobility. That increased on-hire vehicle capacity is likely to contribute to higher taxi demand because prices may fall as service levels increase.

As for regulation, states such as California have already brought services such as Lyft into an established legal framework, called a Transportation Network Company. Companies such as Lyft can operate as long as they ensure that drivers have adequate insurance, clean records (in driving and otherwise), and safe vehicles. That seems like a fair set of regulations for Lyft’s operations in Kansas City. In fact, it seems like a fair set of regulations for anyone who wants to give people rides in Kansas City.

New business models relegate some regulations and regulatory bodies to the dustbin of history. It is time for Kansas City’s antiquated taxi regulations, and not Lyft, to cease operating in Kansas City.

Joseph Miller is a policy researcher at the Show-Me Institute, which promotes market solutions for Missouri public policy.