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Are ride-sharing apps promoting or restricting competition?

Today, there are price comparison services for almost everything.

FILE: The online ride-hailing service Uber. Picture: Reinart Toerien/EWN

OTTAWA - Today, there are price comparison services for almost everything. Websites like Kayak compare prices for flights and rental cars; others, such as Google shopping, rank what we can expect to pay for a huge number of consumer goods. There are plenty more that provide a cross-section of quotes for personal loans, credit cards, and so on.

And, as a growing proportion of consumer spending moves online, it's not surprising to see predictions that these services will grow: after all, many industries are "ripe" for new distribution models. Indeed, price comparison is becoming big business. Two of the biggest travel comparators - the Priceline Group (which owns Kayak and Booking.com) and Expedia - made around $6 billion in revenues in 2014. In the UK, the four largest aggregators had sales of $1.2 billion in 2013, which was an increase of 14% on the previous year.

Interestingly, there are no active price comparison websites or apps for the multitude of ride-sharing services. On the one hand, this may not be a huge surprise, given how nascent the market is and the unpredictability with which it's developing (for just one indicator of this, see the chart below showing the "creative destruction" of prices of New York taxi medallions since ride-sharing services appeared).

Why pay more for your ride?

But the lack of a ride-sharing comparator is not because nobody has tried to build one. It's because of a legal restriction in the way developers are allowed to aggregate information on different players in the market.

The restriction appears to limit the way that prices for ride-sharing services can be compared, and the result is a narrowed range of options for consumers looking for the best price to get them from A to B. By itself, this might not seem like a big deal. But as ride-sharers aggressively expand into new markets, anti-monopoly arguments are frequently put forward in order to gain approval from regulators, win over consumers and secure investment. Put simply, they say ride-sharing apps are flag-bearers for competition, and therefore of huge benefit to consumers.

This isn't the only argument you'll hear in favour of ride-sharing, but it's a compelling one for the individual: why wouldn't you want to pay a better price for your journey? Well, according to Ben Edelman, an associate professor at the Harvard Business School, there are restrictions that might prevent you from doing so - and they have been put in place by some of the same platforms that are claiming to act competitively.

Barriers against competition

Edelman argues that the use of application programming interfaces (API) by ride-sharing services is a "barrier against competition". API has been called the "connective tissue of the web" and it underlies many popular mobile applications. Essentially, it's a description of how pieces of software can communicate with each other, and it allows developers to build useful apps without needing to start entirely from scratch.

For example, a developer might want to link real-time traffic information with a GPS navigation service - and they could do this by using APIs from separate providers to link the data together in a single application. Linking the APIs allows the two to be combined, creating a single system that doesn't require a user to switch between two applications to get both traffic information and directions.

Without access to the APIs, they would need to build the map and traffic components themselves.

How does this relate to ride-sharing? In theory, a developer could take the APIs from any ride-sharing service, combine the most relevant, real-time data - the availability of cars and the price offered - and build software that allows users to compare services and book a vehicle. It's the same principle one might use when finding the cheapest flights for their summer holiday: enter travel plans into a price comparison website, compare the options and make a selection.

Unfortunately, there's a catch. Companies release access to their API in order for developers to use it, and - quite reasonably - they do so under certain terms and conditions.

Why we won't be seeing ride-sharing price comparisons any time soon

The research argues that such contract clauses can "transparently impede competition" and are expressly intended to prevent any traffic from moving to other ride-sharing platforms: "the API restrictions are designed solely to advance the company's business interests by blocking competition". Independently, this might not be an issue: Edelman acknowledges that companies are clear in their restrictions, and are ultimately free to set the conditions of use for their data.

But by blocking API access to anyone trying to build a real-time comparison service for ride-sharing platforms, it's impossible to generate a complete, real-time picture of services, and therefore the information available to consumers when making a choice of providers is limited. If perfect information is an enemy of monopolies, then preventing consumers from accessing real-time price information is anti-competitive - the very thing ride-sharers argue they are disrupting in the taxi market.

As with many technologies brought about by the Fourth Industrial Revolution, this presents a thorny issue for regulators. Technology has a history of outpacing the laws designed to regulate it, and there are already a lot of grey areas relating to vehicle safety, background checks for drivers and training, among others. These are important issues, but they also assume that ride-sharing companies are no different to taxi operations. A more relevant question for this century is the employment status for drivers, how and when they work, and the impact on social security systems.

The distinction highlights challenges for technology and society today. In addition to blurring the lines between technology, industry and the individual, it will require us to think more deeply about how disruptive innovation changes our culture. As Edelman hints in summarising his research, it is against the "backdrop" of competition that ride-sharing generates value, so regulators should account for that claim when setting the rules of the game. In other words, we should live by the principles we ask to be applied to us - a useful lesson for our administrators as technology ingrains itself further in our lives.

Written by Stefan Hall, Project Specialist

This piece was first published by the World Economic Forum.

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