Taxis vs. Uber - What Would Friedman Say?

In his paper, “The Role of Government in a Free Society,” Friedman argues that monopolies restrict output and voluntary exchange. Friedman reasons that by limiting the availability of alternatives, monopolies inhibit freedom of exchange as well as stigmatize innovation. Friedman’s point is a salient issue today in regards to recent debate about whether or not the popular app “Uber” should be allowed to exist in cities such as D.C. that have pre existing regulations which essentially monopolize the taxi industry. In many cities, there is a ceiling imposed that limits the number of cabs allowed on the roads. This causes taxi licenses, or medallions, to trade for up to $600,000. The high price tag can be justifiable given the fact that the number of cabs is set, and barriers to entry are very high due to this essentially government-created monopoly. The industry has recently been challenged by technology as competitors such as “Uber” have infiltrated the market. Uber allows its users to book a driver and pay for the fare all with the use of their smartphone app as well as allows the consumer to choose the type of car and driver based on ratings. This causes Uber drivers to compete with each other, which ultimately benefits the end-consumer. Nonetheless, the DC Taxicab Commission is doing everything in its power to keep Uber out of the district. Many of its arguments against the popular app stem from the high price of a license that existing taxicab drivers and corporations have paid. Ironically, this high cost is a direct result of the very same government regulators that use it as an arguing point against Uber.

Friedman’s insights we discussed in class are clearly applicable to the issue, as the taxicab industry in many cities is as close to a government-created monopoly as you can get. Freidman would reason that by preventing alternatives to exist, legislation to uphold the existing monopoly would disadvantage consumers by inhibiting voluntary exchange and preventing innovation. It is clear that this is exactly what has happened within the industry up until this point- the existing industry does not give the consumer much freedom of choice and it lacks technological updates and options in a world that is becoming increasingly digital. Friedman would maintain that this industry is insensitive to the dynamic world because it is a publicly regulated monopoly and therefore there is little incentive to innovate to changing demand. It is for these reasons and the fact that this monopoly is not natural that Friedman would view the issue as one that should be settled in the market place, not one in which the government should play a role. Allowing Uber to enter the marketplace would be healthy for consumers who would benefit from competition, promote innovation within the industry, and allow voluntary exchange to flourish.