Economists Agree: Ride-Sharing Benefits Consumers

A Michigan House Committee just approved House Bill 5951 introduced by Rep. Tim Kelly, R-Saginaw Township, which would create a statewide regulatory framework for transportation network companies, such as Uber and Lyft. State-based regulations can be worse than locally derived ones, but these proposed rules are reasonable and would make Michigan a leader in innovative transportation services. But how will these services benefit Michiganders?

In a recently published report by the Mercatus Center at George Mason University, scholars Stewart Dompe and Adam C. Smith make the case that customers with lower levels of income will likely benefit most from the expansion of ride-sharing services.

They explain that companies like Uber and Lyft are primarily competing with taxi cab services in urban communities. Taxi regulations artificially limit the supply of cars for hire, driving up the price and pushing this service out of reach for low-income residents. By increasing the competition for customers, ride-sharing companies will force taxi cab companies to expand their customer base – in other words, lower prices and serve more low-income consumers.

For these reasons, allowing companies like Uber and Lyft to operate in Michigan would primarily benefit lower income residents. Yes, people who can afford taxis will gain from reduced rates as a result of increased competition, but those who cannot currently afford any cars for hire will gain the most. For the first time, these consumers will have the opportunity to capture the benefits of private transportation services that currently only their wealthier neighbors could afford.

On these theoretical grounds the case seems strong. But the empirical case is solid, too. A 2006 study by Adrian T. Moore and Ted Balaker found that the empirical evidence overwhelmingly supports reducing taxi regulations. Further, a recent survey of 43 leading economists (from a wide range of political perspectives) found unanimous agreement that increased competition from ride-sharing services would benefit consumer welfare. (Getting any group of economists to all agree on something is quite remarkable!)

Both the theoretical and empirical evidence suggests that expanding ride-sharing services in Michigan would be on net beneficial, especially for residents with lower incomes. Michigan policymakers should ignore the predictable complaints from the taxi cab companies who fear increased competition, and roll out the welcome mat for new innovations that will drive down costs and extend the benefits of car services to more Michiganders.