Sharing Economy

Cap on, cap off: what we need to learn from NYC

Alexa Tang · September 24, 2018 · 5 min read
As someone who lives and breathes sharing economy trends every day, Alexa Tang shares her thoughts on the NYC rideshare vehicle cap.

The recent news around the rideshare vehicle cap is interesting to me because it’s not about what Uber and Lyft are doing, but it’s about what they will need to do. As someone who lives and breathes sharing economy trends every day, this is exciting. I see the recent regulation in NYC to cap ‘for-hire vehicles’ (FHV) licenses as a way to ensure the livelihood of rideshare drivers, but I want to explore how it really does affect their livelihood in the future.

I’ll start with the study that NYC will conduct over 12 months after passing the recent regulation. The regulation was passed in part to pause the current growth trajectory of 2,000 new cars getting licenses every month while the City gets a better handle of what’s happening in terms of congestion and TLC (New York City Taxi & Limousine Commission) driver livelihood. From my observations of what’s happening in the market, we are at a unique stand-still between rider needs, driver needs, and regulation needs until we have more data. So let’s take a quick look at what is happening now.

On the driver side, rideshare’s rapid growth in just a couple of years is heavily thanks to aggressive driver bonus programs. Even though bonus schedules have changed over the years, rideshare companies are still using bonuses as a way to get drivers to sign up and keep driving.

On the rider side, there’s nothing quite like offering a great price to win people over. In the early days when rideshare began, this was definitely a way to help people look past the idea of entering a stranger’s car. Now, even though it’s commonplace to use rideshare daily in big cities, the prices are still competitive compared to other options whether it’s a public or private mode of transport.

This leads me to believe that rideshare providers prioritize winning riders to gain market share. Typically, when a business offers subsidies, the cost is passed along to consumers. But this does not seem to be the case in rideshare since rides are still relatively cheap, so it’s possible that the companies are absorbing the costs of offering driver bonuses.

If this is the case, what happens to mobility options as NYC moves forward with the FHV license cap? We have large and popular rideshare providers that are committed, regardless of costs, to offering convenient rides at attractive prices. We have a city that’s committed to preserving one of its key, iconic industries and protecting the welfare of all its people.

Right now, there are more questions than answers. We’ve yet to see how the license cap may or may not change the demand for rideshare, we’ve yet to see how providers may or may not change their pricing schedules, and we’ve yet to see what other cities may adopt similar regulations. But, we have already seen behavioral shifts in response to the cap – for example, more people purchasing vehicles and enduring long waits to ensure a TLC license before they get capped.

The rush for licenses supports the idea that the supply cap is actually creating a secondary market that we also need to monitor as we study the effects of the cap. I’m interested in how it will move different layers of the market. To start:

  • Demand: Now there are two sets of demand in play: demand for shared rides and demand for vehicle licenses. A decrease in rideshare vehicles doesn’t necessarily mean there will be fewer ride requests. A limited supply of vehicle licenses could likely lead to an increased demand to share the cars that hold FHV licenses.
  • Pricing: Will FHV license holders charge rideshare drivers who want to rent their vehicles? Will they apply a premium due to limited demand, and how will rental fees compare between individual FHV license holders and shared fleet owners?
  • Congestion: If the cap only limits awarding new licenses, can the cap reduce congestion if there are already concerns at the current count of licenses in the market? How does a static supply cap improve congestion that depends on the demand of a constantly fluctuating environment?
  • Regulations: By implementing a supply cap on FHV licenses, NYC is placing rideshare and taxi services in the same category. But the nature that makes rideshare different is what has also made it popular: it’s a two-way marketplace that connects riders and drivers based on their current needs at that time. With a supply cap, however, the rideshare dynamic becomes a one-way marketplace – is the correct approach to regulate rideshare like taxis? What would happen if taxis were de-regulated to be more like rideshare?

To me, these questions are the entry points to the actual opportunity. Even in this short list, there is plenty to track and start assessing where we want TLC drivers to operate, when, and how to move them there. However, if public and private sectors can agree to take a data-driven approach to monitor – and anticipate – the effects of the cap beyond congestion, that’s where I believe they’ll find a solution that both nurtures innovation and the livelihood of all people.

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