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Opinion Ride-hailing services will disrupt B.C.'s taxi industry. That’s a good thing for all involved

Taxis have benefited too long from an overly restricted market, with all of the expected results: high prices, poor service and a lack of innovation.

Richard Vogel/The Associated Press

Saul Klein is the dean of the Gustavson School of Business at the University of Victoria, home of the Gustavson Brand Trust Index.

As of this moment, Vancouver is the largest city in North America without legally sanctioned ride-hailing services. But that won’t be the case for long: In July, the province of British Columbia announced that it would allow ride-hailing services to operate here starting Sept. 16, meaning the various smaller, community-based (and currently illegal) services operating in Vancouver are likely to be joined soon by the likes of Uber and Lyft.

But the province won’t make it easy. Although some of the new restrictions that B.C. has instituted are worthwhile, such as mandatory insurance, a requirement that drivers offering ride-hailing will be required to obtain Class 4 commercial licences, the same as held by taxi drivers, and observe minimum-fare requirements, are more problematic. The professed reason is safety – the move was endorsed by B.C.’s police chiefs – but the regulation didn’t come from the provincial committee in charge of making ride-hailing recommendations, and critics have included the Surrey Board of Trade and Lyft itself.

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The solution should not be to make ride-hailing services more like taxis, but to make taxis more like ride-hailing services. And once we do, things will be better – for both British Columbians and taxi drivers.

Taxis have benefited too long from an overly restricted market, with all of the expected results: high prices, poor service and a lack of innovation. Disruptive entrants are needed to create more competition in the market. The high prices paid for taxi licences, or medallions, is a reflection of the monopoly that such licence holders enjoy, and an indication of prices for taxi rides being set at excessive levels. Poor service in peak times are also examples of what happens when market entry is constrained. It is only since the entry of companies such as Uber and Lyft that we have seen taxi operators create user-friendly apps, and it is still difficult to use such apps when travelling to different cities.

Overregulation that blocks the rise of a more innovative industry is the wrong way to go. The need to have a level playing field for all providers is an admirable goal, but that playing field should be as open as possible, and not limited to current players and not be based on setting minimum prices that constrain competitive forces. Service providers should be free to choose their own business models and consumers should be free to choose which models work for them. Let the market determine success. If current taxi operators can make a compelling case to customers that they are more reliable, safer or better in other ways, they should be free to make this claim – but they should not be permitted to require others to follow their same business model.

The consequences of restricting entry are what we see in the airline industry, where a lack of competition on all but the major routes in Canada has left travellers with few choices and allowed airlines to get away with a “take-it-or-leave-it” approach to customer service. It is no wonder that airlines are among the least trusted brands in Canada.

The majority of ride-hailing drivers are part-time and casual workers, working on flexible schedules and responding to changing-demand conditions for their services. In times of peak demand, for instance, prices rise, encouraging more drivers to enter the market and satisfy customers. Investing in Class 4 commercial licences to be able to generate a supplemental income makes no sense for these part-time drivers, and in many other jurisdictions – Quebec, Saskatchewan, Manitoba and Ontario – ride-hailing drivers can just have standard licences, or the equivalent of B.C.'s Class 5 licences.

New technologies inevitably create disruption, with new opportunities developing alongside new issues of governance and management. While regulation is necessary to achieve the public interest, for example in ensuring road safety, that regulation should not be in place to protect the incumbent businesses, but rather the public at large. This requirement feels too much like the former.

The onus, however, remains on the new entrants to prove themselves and earn consumer trust. Our latest Brand Trust study revealed that Canadians’ trust in Uber is low – though, interestingly, trust was significantly higher among Uber consumers who have used the service than among other respondents who have not. That is not a reason to restrict them, but rather a problem for them to overcome. If they cannot do so, that is their problem.

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Still, whether the taxi industry likes it or not, app-enabled ride-hailing services are taking market share away from taxis for a reason. They offer a host of superior benefits in terms of convenience, price and service. As the technology more efficiently matches drivers with passengers, it benefits both.

The government has said that British Columbians have been “asking and waiting for these services” because of their benefits. But the commercial-licence and minimum-fare requirements undermine the ability of these benefits to be realized. Increased competition from ride-hailing can only encourage the taxi industry to evolve – and if that happens, both the industry and riders alike will benefit.

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