When to Encourage a Monopoly: Uber and Lyft Are Killing Public Transit

By Evan King

From an equity, economic, and common sense standpoint, the title of this post sounds terrible. Hear me out. Public transit is in trouble and has been for years. Transit ridership has been falling across the United States, and researchers have been coming closer and closer to attributing this to the rise of ride-hailing. Transportation Network Companies (TNCs) like Uber and Lyft fulfill a market function that is particularly needed in this country. They are not just palliatives for an inadequate public transportation system: when neither transit nor private transport is available, ride-hailing is a great thing. Uber and Lyft are excellent in emergencies and at hours when it does not make economic sense to run transit. They are also ideal for times when people are intoxicated and other such situations that could drive enough profit even with the changes I want to advocate next. 

The problem is that TNCs are now competing with transit, which is fundamentally not a competitive operation. Transit depends on public subsidy but is nonetheless an essential service in most cities. For the public good- or for environmental, traffic, and social reasons- transit use should be maximized. Research suggests that TNCs are taking riders from already struggling transit systems across the country. 

Some might view this outcome as a natural and even desirable market resolution of an issue. Others may perceive it as a market failure given the negative externalities like increased traffic, pollution, and decreased access to transportation for disadvantaged people. 

I say this is a market failure for the opposite reason. Uber and Lyft have ushered in a bizarre market situation between them. In an effort to undercut the other, both have raised huge amounts of outside capital, thereby driving their prices far below their true operating costs [1]. Under typical economic notions, the resulting duopoly is the best possible situation for consumers. In an almost reversal of the typical injustices resulting from capitalism, venture capitalists are paying the price and customers are reaping the benefits. 

Unfortunately, the subsidy provided by venture capital isn’t all good. These unnatural prices are driving some former riders to leave transit for TNCs. And yet, even the artificially low prices are not low enough for transit dependent populations. In short, the duopoly and subsidy structure is taking choice riders away from transit and leaving poorer people to fund it.

I do not pretend to know how a city could grant a monopoly to a single TNC. The action itself could be seen as a contradiction to everything the government is meant to do. This situation is different. Ride-hailing is not an unequivocal good and should not be provided at the level it is now. City-by-city monopolies would cause TNCs to raise their prices to be more reflective of the cost of operating and also the externalities. 

Uber and Lyft have a place in our transportation system. City-by-city monopolies could enable the companies to make profits while allowing transit to survive. 

  1. LA Times (May 11th 2019) https://www.latimes.com/business/technology/la-fi-tn-uber-ipo-lyft-fare-increase-20190511-story.html

Featured Image: TNCs line up at the curb. Photo Credit: LA Times

About the Author: Evan King is a first year masters student in city and regional planning. His interests include transportation policy in the developing world, light rail, and freight movement on inland waterways. He can found in his free time trying to kayak long distances and making hand-drawn maps. Evan hails from central Connecticut and completed an undergraduate degree in Maryland. Opinions are his own.