If Ridesharing Is Banned, What About Ride-Trading?

If Ridesharing Is Banned, What About Ride-Trading? 353

Posted by samzenpus on Monday March 31, 2014 @11:42AM from the hop-on dept.

Bennett Haselton writes "The city of Seattle just imposed new limits on commercial app-based ride-sharing companies like Uber and Lyft, effectively protecting taxi companies from low-cost competition in the form of smartphone apps. If other cities follow suit, could a company help ridesharers circumvent the restrictions by creating a ride-trading app, allowing drivers to earn 'miles' by driving passengers, and redeem those miles later to get rides for themselves?" Continue reading below to see what Bennett has to say.

The cab companies got Seattle to crack down on ridesharing companies by arguing that by letting drivers charge money for rides, they were essentially operating illegal unlicensed taxi services. So it's not hard to imagine other cities taking similar action on the same ambiguous legal grounds, as Los Angeles did in sending cease-and-desist notices to Uber, Lyft and Sidecar, ordering them to stop operating entirely.

I tried some of these services and actually never saw what the big deal was. Much of the time, they were almost as expensive as taxis, much too pricey to use on a regular basis, and I would never use them unless my own poor planning left me somewhere without my own car and desperate somewhere faster than public transit could take me. Perhaps cab companies were afraid of where the services were eventually headed -- especially towards a model where drivers could set their own prices. As far as I know, currently all ridesharing services set a minimum price per mile and don't let drivers set their rate any lower. But many drivers would probably be willing to drive at a price lower than what the app allows, and a set-your-own-price model probably really would put the cab companies out of business.

Perhaps some cities will take a more benign view of ridesharing in the long run, but as long as money is changing hands, (1) the city will certainly view it as within their rights to regulate the ridesharing industry, and (2) taxi companies will be able to argue, not unreasonably, that the companies are effectively running unlicensed taxi services. Of course the real solution would be for cities to stop limiting the supply of taxi medallions and artificially enriching cab companies at everyone else's expense (if the city's concern is with rider "safety", they could increase the number of taxi medallions while still requiring all drivers to take safety training). But that doesn't seem likely to happen any time soon. So instead, what if a company created an app that attempted to circumvent the legal restrictions, by allowing users to trade rides -- not for cash, but for returning the favor?

Here's how it could work: When you sign up as a new user, you have a "miles" balance of zero. (The very first users of the system would have to start out with a nonzero balance, so that there are some units in the system to trade, but everyone who joins after that starts at zero.) You have to earn miles by giving someone else a ride before you can redeem your miles by getting a ride yourself. So you log in as a driver, and some other user "hails" you through their smartphone app, much as riders hail drivers through Uber or Lyft. You pick up a passenger and give them a ride to their destination, and at the end of the journey, they transfer a number of "miles" to you indicating how far you drove them. You now have a positive miles balance, and you can "spend" it by hailing a ride yourself later on. Drivers and riders could leave ratings for each other just as they do on Uber and Lyft. What Couchsurfing is to Airbnb, this service would be to Uber.

Since no money is changing hands, the arrangements would presumably not be covered by existing taxi statutes. You could even make an argument that a city couldn't pass a law regulating these ride-trades even if they wanted to, because as voluntary arrangements between consenting parties, they're protected under our First Amendment right of freedom of association! Of course, libertarians believe all commercial transactions between consenting parties ought to be exempt from regulation as well, but most state and local governments take a dim view of that premise. However, take money out of the equation, and you're on much stronger ground that your ride-trading arrangements aren't covered by existing laws.

(It is of course silly and inconsistent that the law often forbids selling something for money, but allows trading it for something of "value", or permits it if the nature of the trade is not made explicitly clear. If a girl sleeps with you and you occasionally "lend" her money, she's a high-maintenance girlfriend, but if she ever does you the courtesy of spelling out the arrangement explicitly, she's a prostitute and can go to jail. But as long as the government makes those silly and arbitrary distinctions, we might as well use them when they count in our favor.)

Would ride-trading with strangers be safe? Well, when a rider pages a driver, the system could tell the rider the license plate of the car associated with that driver's profile, so unless the driver was in a stolen car, the system would always have a record of the license plate (and, hence, the owner) of any car that picked up a passenger. More generally, if I were a user in a system like this and someone told me it sounded unsafe, I would just say the same thing I always say about Couchsurfing (where I've hosted over 50 people with no bad experiences). Namely: "Look, have you or any of your friends ever gone home with someone you met at a bar? And that's fine, I'm not judging you, I'm just saying that was a hell of a lot more risky than meeting up with someone in a system where you can read other people's references." Besides, in many cities there's already thriving subculture of slugging -- picking up total strangers so you can use the carpool lane and they get a free ride.

I feel like I would be happy to have this ride-trading service available if I ever wanted a quick ride across town and didn't have my car. The only "cost" to me would be the cost of giving someone an equal-length ride at some other point in time when I wasn't in a hurry. (Or even giving someone a lift to a place that I was already going.) It's an efficient transaction because it lets me spend miles when my time is valuable, and then rack up the miles later on when I have some time to kill that's not as valuable. You can realize even more efficiencies by letting people pay "premium rates" for periods when demand is high (Friday and Saturday nights) or supply is low (early mornings when people need rides to the airport), so that the balance of miles that you pay for a ride may be greater than the actual number of miles traveled.

On the other hand, there's an inefficiency in that the system cannot serve the needs of people who want a ride, but whose time is too valuable to spend it driving in order to "earn" the miles to redeem for the ride. This is a limitation in any system that bans money as a means of trade and only lets you trade a service for a repayment-in-kind of the same service.

To environmentalists who would object that this promotes greater car usage: First of all, it might result in more impromptu car pooling over routes that were being inadequately served by buses, in which case the passengers were going to have to take cars anyway, so they might as well be piled into fewer of them. But in any case, I would actually take the bus more if a service like this existed. I live in Bellevue, about a 20-minute bus ride outside of Seattle, and I'd gladly take the bus in to Seattle if I was going to a specific destination close to the bus line, and knew I was coming right back afterwards. The problem is that once I'm in Seattle, if I want to get to some other arbitrary destination in Seattle, taking public transit is slow and annoying (and, you may have heard, often involves some waiting around in the rain). I drive my car in to Seattle not because I want to drive to the city, but in order to have a car while I'm there. If I could summon a ride in under two minutes to take me anywhere else in the city (with the only price being to return the favor to someone else later), I wouldn't need my car and could take the bus downtown.

So, even assuming a service like this would be useful, why would a company create it? We know how Airbnb and Uber make money, by skimming a cut off of each transaction. But how would a company make money just by connecting riders and drivers for complimentary rides through a free app? Well, Couchsurfing connects users for free stays in each other's houses, and they got venture capitalists to invest $22 million. The thinking seems to be that if even a free a service has enough users, it must be worth something.

The major obstacle to deploying the system, is that the system would require a critical mass of users in any given city, before it could become effective. If there aren't enough drivers active in the city, then hailing a ride would take so long that after factoring in the delay, you might as well have taken the bus. You'd need enough drivers active to be reasonably sure that in any given neighborhood, you can catch a ride quickly -- and for the drivers have to be out in force, they have to know that there's a critical mass of riders who are ready to offer some miles in their balance for rides. Services that require a critical mass of users in order to be successful, are notoriously hard to get off the ground. If the project had the feeling of a social movement behind it -- in the spirit of resource sharing, as well as environmental friendliness insofar as people like me would be more likely to start using the bus -- perhaps the founders could sign up a base of users over time, prior to actually launching the service. And then once the number of enrolled users was large enough, could launch the live service with a critical mass of users already in place. (Of course, if they tried that out here, this being Seattle, most of those enrolled users who said they would show up, would probably flake out.)

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