Wednesday, June 18, 2014

Uber and taxis in San Francisco

Uber is a national story now, but this post from a former colleague reminded me of a little fact about Uber's origins that many observers outside of San Francisco probably don't know.

Before Uber existed, San Francisco taxicabs were extremely unreliable. On busy nights, you would commonly call a cab dispatching company on your cell phone, talk to a dispatcher who promised that a cab would arrive, wait half an hour or more, and still have no cab show up. This only has to happen a couple of times, on a chilly San Francisco Saturday night while your date stands on the street shivering in her dress and heels, before you start saying to yourself, "Fuck all taxicab companies, forever."

Conversely, I speculate that it was not uncommon for cab drivers to receive a call, only to have the passengers disappear, since they'd grabbed another cab that happened by sooner. In fact, once I concluded that taxi drivers were as likely to flake out on me as not, I started doing this myself. What else could you do?

In other words, game-theoretically, taxicabs and passengers were stuck in a low-trust equilibrium. Passengers could not rely on cabs, so they would grab any cab they could, even if they'd called one. Cabs could not rely on passengers, so they would pick up any fare that looked promising, even if they had been dispatched. A taxi company could have disrupted this equilibrium by offering reliable service and building a brand name as such. None of them did. Much like your local cable company, they were collectively content to sit on their government-protected oligopoly and treat customers like garbage.

(Notice that passengers can't disrupt this equilibrium: there's no equivalent "union of passengers" to which a reputation for reliability could be attached.)

The most important thing about Uber, at least initially, was not that you called it with a handy smartphone app, or that Uber cars were fancy black limos, nor even that they always accepted credit cards.[0] It was simpler than that: Uber cars came when you called. Uber achieves this result through a variety of means, but the most obvious is simply holding individual drivers accountable for every ride.

Therefore, at least in San Francisco, the whining of taxi companies exposed to competition from Uber and Lyft is the whining of any industry that serves its customers badly, and then is exposed to superior competition that serves its customers well.

Uber's initial success in San Francisco was a key stepping stone in their rise to national prominence. One wonders whether Uber would exist today if even a single SF cab company had served customers reliably.

[0] p.s. The credit card thing. Every SF taxi rider has had this happen: the driver has the credit card reader in the car, staring you in the face, but the driver says: "Sorry, it's not working." Now, if this happened once in a while, you might believe it. But it happens every single time. Is it really the case that every single credit card reader in the SF taxicab fleet is out of order 100% of the time despite a good-faith effort to keep them operational? Or is it much more likely that the driver is trying to cheat on his taxes, which is made easier if he forces all his customers to tip him in cash? Or else the taxi company is cheating on its obligations to its drivers by keeping tips paid on credit cards for itself? And now this confederacy of cheats wants the government to protect them from competition? Do you feel sympathy for this band of cynical hypocrites?

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