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July 5, 2015

I currently have no dog in the ongoing local (and growing global) cab and ride-sharing application competition fight. I don’t act for any taxi company or ride-sharing firm. I do, however, as a competition lawyer and citizen, strongly support competition and undistorted markets.

It remains clear to me that Canadian consumers benefit from as open and unregulated markets as possible. It is not clear to me, however, what principled distinction local regulators may rely on to protect, for example, the conventional taxi industry when other industries are subject to little or no such similar insulation from market forces.

To take some obvious (but I think illustrative) examples – why impose quotas on the number of taxis and artificially set fee tariffs but not Chinese food restaurants? Or supermarkets? Or any of hundreds or thousands of other retail sectors? (Yes I recognize that Canada is still criticized for its restrictions in some major sectors, including supply management, banking and telecom.)

In this regard, I was cheered (but only cautiously optimistic at the moment) to see two major recent developments in the ongoing taxi/ride-sharing competition tussle in Toronto.

First, an Ontario Superior Court judge dismissed the City of Toronto’s attempt to restrict ride-sharing company Uber (see: here), finding that Uber had not broken any bylaws or operated an illegal taxi company. Second, Toronto’s (relatively new) mayor John Tory has now said that new Toronto laws are needed to regulate both ride-sharing technologies and taxis to level the playing field (see: here).

From a competitive market perspective, the second development is potentially more worrying – particularly given that a decision by Toronto City Council to review the city’s taxi related bylaws was also accompanied by a nearly unanimous motion calling for greater enforcement in the meantime (see: here).

In this respect, I hope that “level the playing field” in the Toronto taxi sector means lowering barriers and is not code for imposing more obstacles to new entrants.  Or, worse, imposing restrictions on ride-sharing firms that do not apply to incumbent taxi companies.

At the outset I should also say that I am concerned that “safety” appears to be taking centre stage by taxi advocates as a justification for restricting new ride-sharing technologies.  This is a common strategy for incumbents that oppose increased competition.  In reality, safety and competition are usually two different questions.  To cite several examples, restaurants must adhere to certain safety requirements, but prices and numbers are not limited; lawyers are similarly required to adhere to certain practice standards to protect their clients, but again their rates or numbers are not regulated.  In sum, safety requirements can be imposed without limiting the number of players or pricing.

With that introduction, I thought I would make a few modest proposals for Toronto City Council to consider in their efforts to “level” the taxi/ride-sharing playing field.

These proposals may appear slightly radical in an industry that has not seen significant change in many years. However, I don’t think they are any more significant than the day-to-day competitive pressures faced by most other Canadian businesses:

1. Eliminate quotas. Eliminate quotas for cabs or ride-sharing companies in Toronto. Most Canadian businesses are not subject to quotas, which is in fact a criminal offence when entered into by competing companies under the Competition Act in unregulated sectors. As such, it is not clear why taxi firms should benefit from market protection when most other Canadian sectors do not.

2. Eliminate price regulation. Eliminate price regulation of cabs or ride sharing companies in Toronto. Again, price-fixing agreements between competing firms, when not regulated, are criminal offences under the Competition Act. So, like quotas (i.e., limits on the number of cabs), it is similarly not clear why taxi firms, and not other industries or professions, should benefit from price protections apart from ordinary market forces.  Or, to put it another and more blunt way: local governments fix the prices private companies can charge for their services?  Huh?

3. Eliminate other barriers. Eliminate any other artificial barriers to entry for both new taxi or ride-sharing firms. In other words, impose the least restrictions possible to protect other – i.e., non-competition – objectives (e.g., passenger safety, insurance, etc.).

4. Adopt a “technology neutral” approach to regulation.  Regulate both the taxi and ride-sharing application industries in a “technological neutral” fashion. In other words, equally apply the same regulatory requirements to firms that in substance carry local passengers regardless of the particular technological means for doing so (i.e., traditional car and dispatch service, ride-sharing app or other similar technology, etc.). In particular, avoid imposing regulatory restrictions that disadvantage one technology as compared to another. (The recent spatial restrictions on Toronto food trucks from traditional restaurants being one recent unfortunate example of handicapping one type of competitor from incumbents.)

5. Equalize insurance requirements. Require all cab or ride-sharing companies in Toronto to adhere to the same insurance requirements.

6. Equalize license fees and other legitimate objectives. Equalize license fees for traditional taxis and ride-sharing companies. Municipal revenues are a legitimate local objective. Also equalize other minimum protections for both taxi companies and ride-sharing firms to ensure other legitimate policy rationales to competition – for example, passenger safety, passenger complaint mechanisms or advertising standards, etc.

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