Monday, 8 June 2015

Uber vs. Taxi Federation (lobbying in the wild)

I've had some interesting conversations with my students this semester about the lobbying activities of firms. Some of them expressed surprise and wondered to what extent lobbying occurs in New Zealand, given that lobbying is estimated to cost more than US$800 million per year in the U.S.

In ECON100 and ECON110 we discuss lobbying as a form of rent-seeking, where the monopolist uses some of its profits (its economic rents) to protect its privileged monopoly position (such as by maintaining barriers to entry into their market). We can extend this to any firm (or firms) in imperfect competition, where they are making high profits. However, firms may also lobby government in order to remove barriers to entry into the market, in order to allow them to compete where they would otherwise be locked out of the market.

A recent example for New Zealand is the ongoing showdown between Uber and the Taxi Federation. Both sides are lobbying government - the Taxi Federation wants to keep high barriers to market entry, and Uber wants to remove them.

How is this lobbying playing out? The Taxi Federation is conducting "an unrelenting campaign to see [Uber] shutdown...", including attacking Uber on safety and crime, and pricing. Obviously, it's in the Taxi Federation's best interests to minimise competition - this ensures that they maintain cosy control over the number of registered taxi operators (although see my 2013 post on market competition among taxis in Wellington).

On the other side, Uber is employing specialist lobbying consultants Saunders Unsworth to pitch to government the benefits of increased competition, and to reduce the barriers to market entry, which currently include each driver needing three endorsements on their licence, with total costs upwards of $1500. Without lower entry barriers, it will be difficult for Uber drivers to compete in the market.

Who will win the lobbying battle? It's anyone's guess, and will ultimately depend on who does the better job of bending the politicians' ears, particularly given that consumers themselves don't appear to be particularly vocal on this issue.

1 comment:

  1. Uber should be legalized. The taxi industry needs to improve its services substantially.