Tag: regulation

Social Media Regulation

To use (and abuse) my good friend Sangeet Paul Choudary‘s framework, Twitter is both a pipe and a platform. Whether it is a pipe or a platform depends on how you use it.

I always use Twitter in the “latest tweets” mode, which means that tweets from people I follow are shown to me in the order in which they happen, with most recent tweets on top. Twitter has no role in showing what tweets I see or not see. Someone I follow says something, it will come in its appointed place. This is the twitter in its “pipe avatar”. It is no different from reading blogs through an RSS feed. Twitter is just a pipe to convey these tweets to me.

However, this “latest tweets” is not the default mode for Twitter. The default mode is what I think it calls “top tweets” or something. This is the algorithmic timeline that Twitter launched a few years back. Here, twitter’s algorithms determine what you should see. Whether a tweet gets shown to you at all, whether you follow someone whose tweets you are shown and what order tweets are shown to you in – none of these are under your control. It is twitter’s (rather, and understandably, opaque) algorithm that determines this. This is twitter operating in its “platform avatar”, since it, through its algorithms, is effectively controlling the content you see.

Why is it important if twitter is a pipe or a platform? It has to do with regulation. I understand that twitter and facebook have recently suspended Donald Trump’s account. Some people are saying this is unfair, and that it is a step too far for social media. Others are using this as an excuse for more social media regulation.

My contention is that whether social media should be regulated or not is guided by whether social media is a pipe or a platform.

If social media is a pipe, like twitter in its latest tweets (or “traditional”) format, then regulation is unnecessary. In this situation, people are served tweets only because they’ve chosen to receive them. If some account only tells lies, so be it. People follow parody accounts all the time. By censoring accounts, twitter is denying people the right to see the thing they have subscribed to see. Any regulation or censorship means that people are not getting what they have signed up for.

On the other hand, in the algorithmic timeline format, one can make a case for some kind of regulation or censorship. This is because the platform here, either implicitly or explicitly, chooses what the user sees. And if the platform’s algorithms mean that lies and hatred and outrage get amplified, then that is a problem. If a tweet from a parody account suddenly appears in my timeline, it can throw me off and drive me bonkers. And that is not “fair”.

Then again, while one can make a case for censorship in the “platform model”, I’m not advocating that regulation or censorship is necessary. Yes, the opaque algorithms can amplify bad shit, but how are you going to even regulate that?

You want algorithms to be passed by some central board? You want the platform to deplatform your opponents but not your folks? You want a profit-maximising (likely monopoly) private entity to determine what is “truth” and what is not? Irrespective of how the regulation or censorship is defined, it is rather easy for it to have consequences that the designers of the regulation or censorship have least expected.

In any case, these occasional cals for censorship or regulation or cancellation are the reasons why I put most of my better arguments on this blog, which gets delivered through this pipe called RSS feeds.

Video Geographic Monopolies

There is one quirk about video which we don’t face with print – some content is simply impossible to access legally in some parts of the world.

I’m specifically talking about BBC’s Match Of The Day, their end of day highlights package covering the English Premier League. It was one show that I watched unfailingly during my time in London, both for the match highlights, and for the quality of the discussion featuring Gary Lineker, Alan Shearer, Ian Wright et al.

Now I find that the show is simply not available in India – some youtube channels illegally offer the show (before they are taken down, I guess), but without the bits that show pictures of the game (which they are not allowed to show). And that makes for rather painful watching, knowing that you’re watching something substandard.

This is not the case with something like text – as long as I’m willing to pay, I’m able to access content produced anywhere in the world. I can sit here in Bangalore and buy a subscription to the New York Times, and access all its content. Audio is also similar – I can sit here and subscribe to any international podcast, and be able to access the content.

Video doesn’t work that way. The problem is with the way rights are sold – the Star network, for example, has a monopoly on showing pictures from the Premier League in India (having paid a substantial amount for it). And part of their arrangement means that nobody else is allowed to broadcast this material in India. A consequence of this is that we are stuck with whatever (mostly crappy) analysis Star decides to provide around its games. Stuff that is unwatchable.

There is a lot of great sport content online, but the video part is constrained by the inability to show pictures. Check out analysis by Tifo Football, for example – it’s absolutely top class. However, for most games, they have to rely on stock images and block diagrams since they can’t show the pictures which someone has a monopoly on. And that makes the analysis less rich (the Athletic, which I have a subscription to, “solves” this in an interesting way – by using screenshots of the TV footage of the game as part of their text analysis).

I wonder if there is a way out of this. Some leagues such as the NBA have shown some enlightened thinking on this – while they are anal about copyright of their live feed, they don’t care about copyrights on recorded footage. This means that anyone can use footage from historical NBA games as part of their analysis. Better analysis means more people interested in the sport, which means more people watching the live feed, which makes more money for the league (read this excellent interview of NBA Commissioner Adam Silver).

I’m also beginning to think if there is a regulatory antitrust response to this issue. Video distribution (especially of live content) is a natural monopoly, so it doesn’t make sense to have competing broadcasters. However, I wonder if there is any regulation possible for historical feeds that makes them more tradable (with the rights holders getting appropriately compensated without much transaction costs)!

One can only hope..

Reliance Jio Tariffs Seem Stupid

For the longest time I used a post-paid mobile phone. The hassle of recharging regularly, combined with the attractive rates available on post-paid “corporate” plans, meant that right from the time I graduated business school (in 2006) till I moved to England in 2017, I almost wholly used postpaid phones.

And then in England, I got a prepaid sim upon landing, and then soon discovered that it wasn’t more expensive than a postpaid (and there was no paperwork), and I kept the prepaid. Upon returning to India earlier this year, I’ve continued with a prepaid phone, with a Reliance Jio number. A few months back, I took an annual plan with Jio, paying for a year what I used to pay Airtel in less than two months before I moved out of India.

One of the reasons I don’t really mind having a pre-paid now is that it is far less of a hassle than postpaid. I have a 12 month program, for which I paid once, and until next May I don’t need to worry at all. There is one less bill to be paid each month.

And one thing that makes this “hassle-free” is that I don’t need to check my usage at all, either in terms of voice and data. It is a nicely bundled plan, with zero marginal cost for either calling or using data (the latter up to a (very high) limit). When there is a per-call charge, the balance notification at the end of each call places a mental cost (even if it is a low marginal cost), and you sometimes wonder if you need to call at all, or when you need to recharge.

The “current” zero marginal cost plan by Jio (I had a similar plan from EE in the UK) means that there is no such mental cost, and you can treat your prepaid mobile like you used to a postpaid.

Now things are changing. There are regulatory issues in India – on the “inter connection charge”. When a Jio customer calls an Airtel customer, Jio has to pay Airtel 6 paise per minute for Airtel’s service of completing the call on its network. This was earlier 14 paise a minute, which came down to 6 thanks to Jio’s lobbying, and was supposed to go away entirely in 2020.

When the entire market has settled on a zero marginal cost plan, like it is the case in the UK, inter connection charges don’t really matter. In India, however, there is massive asymmetry. People on older plans from Airtel and Vodafone still pay a lot for their calls, so they don’t mind paying a high interconnection charge, and want to receive a high inter-connection charge.

So over the last couple of months you’ve had massive lobbying, and hilarious exchanges like the debate among the major telcos regarding “missed calls” and how long the phone should ring.

Anyway, it appears that the inter connection charges won’t go away next year as planned. Jio is not happy. And in order to show its spite, it has decided to start charging for calling. A marginal charge of 6 paise a minute is going to be applied on Jio customers calling non-Jio phones.

I don’t see how this is going to be good for the Jio customer (I’m protected since I’d bought a long term plan earlier this year). The mental cost of calling comes back. You need to start worrying about what network the person receiving your call uses. You start getting that balance notification at the end of your call. You might need to recharge before your validity is over, creating more mental cost.

In other words, it seems like a rather dumb move by Jio. While it has clearly been taken to show that the operator is pissed off with the competition and the regulators, it is likely to hurt Ji0’s own business and drive its customers to the competition.

There were several smarter ways to handle this. Basically the problem is that Jio’s costs aren’t coming down as expected, so it needs to charge more. And there are several ways of charging more without imposing a mental cost.

One, the price point itself can be increased. Instead of Rs. 150 a month, it can charge Rs. 160. Second, instead of “unlimited free calls”, they can offer “1000 minutes of free calling per month” or something like that, with a different plan offering 2000 minutes of free calling per month. And so on.

But no. Reliance is more interested in making a statement than serving its own customers. And so it comes up with hare-brained schemes like charging per call “outside the network”. It will be interesting to see how their growth goes like over the next few months.

Murray Gell-Mann Amnesia and the Vodnoy Paradox

I’ve written about the Murray Gell-Mann amnesia here before. The idea there is that you trust whatever is printed in the newspaper, except for the section which is your domain of expertise. And despite the newspaper falling short in this section, you read the rest of the newspaper as if everything there is “correct”.

Yesterday I came across a similar idea when it comes to big government – what University of Nebraska economist Arthur M Diamond calls as a “Vodnoy Paradox” after his optomerist – it’s basically about big government advocates who advocate big government in all fields except for the one they’re expert in.

Government regulations sound plausible in areas where we know little and have thought less. But usually those who know an area well can tell us of the unexpected harmful consequences of seemingly plausible and well-intentioned regulations. As a result, the same person often advocates government regulations in areas in which they are ignorant and opposes them in areas where they have knowledge. I call this the “Vodnoy Paradox.” 

In the field they’re expert in they know that regulation doesn’t work, or is misguided, yet they support regulation in all other fields. Isn’t this just Murray Gell-Mann Amnesia in a different context? (quote via David Henderson of Econlog)

The Government Should Regulate Cooks

I wrote this for Pragati Express. Reposting it here since my general readers might find it interesting as well. This follows from my old blog post that bathrooms should be banned. 

Yet another wedding, yet another truckload of wasted food. If, in reality TV show style, we were to try to identify the “root cause” in this instance, it was the cook (or the team of cooks, rather). Each of the seven respondents this correspondent surveyed expressed their displeasure at the quality of the food. One even called it her “worst ever Indian wedding dinner”.

This wedding was only one isolated instance – it is all too common an occurrence in these parts for copious amounts of food to be wasted all because of a cook who ended up cooking badly. And it is all the fault of the cooks, most of whom have never gone to culinary school (we don’t have too many of those in India), and many of whom haven’t gone to school either.

When thousands of people in India die of hunger everyday, and farmers continue to kill themselves in Vidarbha(and elsewhere), this wastage of food is indeed criminal. It comes at a high human cost. And that it comes out of sheer incompetence of unregulated cooks makes it indeed tragic.

There is only one solution to this – the government should regulate cooks. Not just wedding cooks – since wastage of food at weddings and other parties are only part of the problem – the government should regulate anyone who wants to cook. The other day my daughter refused to eat an idli. We decided to salvage our karma by feeding it (the idli) to the neighbourhood street dog, who took one bite and promptly ran away.

Whether you want to make yourself a 2-minute Maggi, or Shantavva in Santemarahalli wants to make a ragi ball, or chef Madhu Menon (hope he doesn’t edit this bit out) wants to make bloggers’ b***, you should need a licence from the government, which certifies that you are a cook of a high enough quality that what you cook will not go waste.

That’s the only way we can save millions of our population from hunger. There is already enough wastage of food because farmers cannot coordinate on what to grow, and because of inefficiencies in the food supply chain, and because of the way agricultural markets are regulated. We don’t want badly cooked food to add to the wastage. And the only way to ensure that is by having the government regulate cooks.

PS: As Ravikiran Rao, a former editor of the former avatar of this publication, likes to put it, “#thatzwhy we need strong regulation”

PS2: Some readers might be advised to consume irony supplements along with this article

Thaler and Uber and surge pricing

I’m writing about Uber after a really long time on this blog. Basically I’d gotten tired of writing about the company and its ideas, and once I wrote a chapter about dynamic pricing in cabs in my book, there was simply nothing more to say.

Now, the Nobel Prize to Richard Thaler and his comments sometime back about Uber’s surge pricing has given me reason to revisit this topic, though I’ll keep it short.

Basically Thaler makes the point that when businesses are greedy and seen to be gouging customers in times of high demand, they might lose future demand from the same customers. In his 2015 book Misbehaving (which I borrowed from the local library a few months ago but never got down to reading), he talks specifically about Uber, and about how price gouging isn’t a great idea.

This has been reported across both mainstream and social media over the last couple of days as if Thaler is completely against the concept of surge pricing itself. For example, in this piece about Thaler, Pramit Bhattacharya of Mint introduces the concept of surge pricing and says:

Thaler was an early critic of this model. In his 2015 book Misbehaving: The Making of Behavioral Economics, Thaler argues that temporary spikes in demand, “from blizzards to rock star deaths, are an especially bad time for any business to appear greedy”. He argues that to build long-term relationships with customers, firms must be seen as “fair” and not just efficient, and that this often involves giving up on short-term profits even if customers may be willing to pay more at that point to avail themselves of its product or service.

At first sight, it is puzzling that an economist would be against the principle of dynamic pricing, since it helps the marketplace allocate resources more effectively and more importantly, use price as an information mechanism to massively improve liquidity in the system. But Thaler’s views on the topic are more nuanced. To continue to quote from Pramit’s piece:

“I love Uber as a service,” writes Thaler. “But if I were their consultant, or a shareholder, I would suggest that they simply cap surges to something like a multiple of three times the usual fare. You might wonder where the number three came from. That is my vague impression of the range of prices that one normally sees for products such as hotel rooms and plane tickets that have prices dependent on supply and demand. Furthermore, these services sell out at the most popular times, meaning that the owners are intentionally setting the prices too low during the peak season.

Thaler is NOT suggesting that Uber not use dynamic pricing – the information and liquidity effects of that are too massive to compensate for occasionally pissing off passengers. What he suggests, however, is that the surge be CAPPED, perhaps at a multiple of three.

There is a point after which dynamic pricing ceases to serve any value in terms of information and liquidity, and its sole purpose is to ensure efficient allocation of resources at that particular instant in time. At such levels, though, the cost of pissing off customers is also rather high. And Thaler suggests that 3 is the multiple at which the benefits of allocation start getting weighed down by the costs of pissing off passengers.

This is exactly what I’ve been proposing in terms of cab regulation for a couple of years now, though I don’t think I’ve put it down in writing anywhere. That rather than banning these services from not using dynamic pricing at all, a second best solution for a regulator who wants to prevent “price gouging” is to have a fare cap, and to set the cap high enough that there is enough room for the marketplaces to manoeuvre and use price as a mechanism to exchange information and boost liquidity.

Also, the price cap should be set in a way that marketplaces have flexibility in how they will arrive at the final price as long as it is within the cap – regulators might say that the total fare may not exceed a certain multiple of the distance and time or whatever, but they should not dictate how the marketplace precisely arrives at the price – since calculation of transaction cost in taxi pricing has historically been a hard problem and one of the main ways in which marketplaces such as Uber bring efficiency is in solving this problem in an innovative manner using technology.

For more on this topic, listen to my podcast with Amit Varma about how taxi marketplaces such as Uber use surge pricing to improve liquidity.

For even more on the topic, read my book Between the buyer and the seller which has a long chapter dedicated to the topic,

Regulating HFT in India

The Securities and Exchange Board of India (SEBI) has set a cat among the HFT (High Frequency Trading) pigeons by proposing seven measures to curb the impact of HFT and improve “real liquidity” in the stock markets.

The big problem with HFT is that algorithms tend to cancel lots of orders – there might be a signal to place an order, and even before the market has digested that order, the order might get cancelled. This results in an illusion of liquidity, while the constant placing and removal of liquidity fucks with the minds of the other algorithms and market participants.

There has been a fair amount of research worldwide, and SEBI seems to have drawn from all of them to propose as many as seven measures – a minimum resting time between HFT orders, matching orders through frequent batch auctions rather than through the order book, introducing random delays (IEX style) for orders, randomising the order queue periodically, capping order-to-trade ratio, creating separate queues for orders from co-located servers (used by HFT algorithms) and review provision of the tick-by-tick data feed.

While the proposal seems sound and well researched (in fact, too well researched, picking up just about any proposal to regulate stock markets), the problem is that there are so many proposals, which are all pairwise mutually incompatible.

As the inimitable Matt Levine commented,

If you run batch auctions and introduce random delays and reshuffle the queue constantly, you are basically replacing your matching engine with a randomizer. You might as well just hold a lottery for who gets which stocks, instead of a market.

My opinion this is that SEBI shouldn’t mandate how each exchange should match its orders. Instead, SEBI should simply enable individual exchanges to regulate the markets in a way they see fit. So in my opinion, it is possible that all the above proposals go through (though I’m personally uncomfortable with some of them such as queue randomisation), but rather than mandating exchanges pick all of them, SEBI simply allows them to use zero or more of them.

This way, different stock exchanges in India can pick and choose their favoured form of regulation, and the market (and market participants) can decide which form of regulation they prefer. So you might have the Bombay Stock Exchange (BSE) going with order randomisation, while the National Stock Exchange (NSE) might use batch auctions. And individual participants might migrate to the platform of their choice.

The problem with this, of course, is that there are only two stock exchanges of note in India, and it is unclear if the depth in the Indian equities market will permit too many more. This might lead to limited competition between bad methods (the worst case scenario), leading to horrible market inefficiencies and the scaremongers’ pet threat of trading shifting to exchanges in Singapore or Dubai actually coming true!

The other problem with different exchanges having different mechanisms is that large institutions and banks might find it difficult to build systems that can trade accurately on all exchanges, and arbitrage opportunities across exchanges might exist for longer than they do now, leading to market inefficiency.

Then again, it’s interesting to see how a “let exchanges do what they want” approach might work. In the United States, there is a new exchange called the Intercontinental Exchange (IEX) that places “speed bumps” over incoming orders, thus reducing the advantage of HFTs. IEX started only recently, after major objections from incumbents who alleged they were making markets less fair.

With IEX having started, however, other exchanges are responding in their own ways to make the markets “fairer” to investors. NASDAQ, which had vehemently opposed IEX’s application, has now filed a proposal to reward orders by investors who wait for at least once second before cancelling them.

Surely, large institutions won’t like it if this proposal goes through, but this gives you a flavour of what competition can do! We’ll have to wait and see what SEBI does now.

Continuous and barrier regulation

One of the most important pieces of financial regulation in the US and Europe following the 2008 financial crisis is the designation of certain large institutions as “systemically important”, or in other words “too big to fail”. Institutions thus designated have greater regulatory and capital requirements, thus rendering them at a disadvantage compared to smaller competitors.

This is by design – one of the intentions of the “SiFi” (systemically important financial regulations) is to provide incentives to companies to become smaller so that the systemic risk is reduced. American insurer Metlife, for example, decided to hive off certain divisions so that it’s not a SiFi any more.

AIG, another major American insurer (which had to be bailed out during the 2008 financial crisis), is under pressure from its activist investors led by Carl Icahn to similarly break up so that it can avoid being a SiFi. The FT reports that there were celebrations in Italy when insurer Generali managed to get itself off the global SiFi list. Based on all this, the SiFi regulation seems to be working in spirit.

The problem, however, is with the method in which companies are designated SiFis, or rather, with that SiFi is a binary definition. A company is either a SiFi or it isn’t –  there is no continuum. This can lead to perverse incentives for companies to escape the SiFi tag, which might undermine the regulation.

Let’s say that the minimum market capitalisation for a company to be defined a SiFi is $10 billion (pulling this number out of thin air, and assuming that market cap is the only consideration for an entity to be classified as a SiFi). Does this mean that a company that is worth $10 Bn is “systemically important” but one that is worth $9.9 Bn is not? This might lead to regulatory arbitrage that might lead to a revision of the benchmark, but it still remains a binary thing.

A better method for regulation would be for the definition of SiFi to be continuous, or fuzzy, so that as the company’s size increases, its “SiFiness” also increases proportionally, and the amount of additional regulations it has to face goes up “continuously” rather than being hit by a “barrier”. This way, the chances of regulatory arbitrage remain small, and the regulation will indeed serve its purpose.

SiFi is just one example – there are several other cases which are much better served by regulating companies (or individuals) as a continuum and not classifying them into discrete buckets. When you regulate companies as parts of discrete buckets, there is always the temptation to change just enough to move from one bucket to the other, and that might result in gaming. Continuous regulation, on the other hand, leaves no room for such marginal gaming – marginal changes aer only giong to have a marginal impact.

Perhaps for something like SiFi, where the requirements of being a SiFi are binary (compliance, etc.) there may not be a choice but to keep the definition discrete (if there are 10 different compliance measures, they can kick in at 10 different points, to simulate a continuous definition).

However, when the classification results in monetary benefits or costs (let’s say something like SiFis paying additional regulatory costs) it can be managed via non-linear funding. Let’s say that you pay 10% fees (for whatever) in category A and 12% in category B (which you get to once you cross a benchmark). A simply way to regulate would be to have the fees as a superlinear function of your market cap (if that’s what the benchmark is based on).

 

Uber’s anchoring problem

The Karnataka transport department has come out with a proposal to regulate cab aggregators such as Uber and Ola. The proposal is hare-brained on most  counts, such as limiting drivers’ working hours, limiting the number of aggregators a driver can attach himself to and having a “digital meter”. The most bizarre regulation, however, states that the regulator will decide the fares and that dynamic pricing will not be permitted.

While these regulations have been proposed “in the interest of the customer” it is unlikely to fly as it will not bring much joy to the customers – apart from increasing the number of auto rickshaws and taxis in the city through the back door. I’m confident the aggregators will find a way to flout these regulations until a time they become more sensible.

Dynamic pricing is an integral aspect of the value that cab aggregators such as Uber or Ola add. By adjusting prices in a dynamic fashion, these aggregators push information to drivers and passengers regarding demand and supply. Passengers can use the surge price, for example, to know what the demand-supply pattern is (I’ve used Uber surge as a proxy to determine what is a fair price to pay for an auto rickshaw, for example).

Drivers get information on the surge pricing pattern, and are encouraged to move to areas of high demand, which will help clear markets more efficiently. Thus, surge pricing is not only a method to match demand and supply, but is also an important measure of information to a cab aggregator’s operations. Doing away with dynamic pricing will thus stem this flow of information, thus reducing the value that these aggregators can add. Hopefully the transport department will see greater sense and permit dynamic pricing (Disclosure: One of my lines of business is in helping companies implement dynamic pricing, so I have a vested interest here. I haven’t advised any cab aggregators though).

That said, Uber has a massive anchoring problem, because dynamic pricing works only in one way. Anchoring is a concept from behavioural economics where people’s expectations of something are defined by something similar they have seen (there is an excellent NED Talk on this topic (by Prithwiraj Mukherjee of IIMB) which I hope to upload in its entirety soon). There are certain associations that are wired in our heads thanks to past information, and these associations bias our view of the world.

A paper by economists at NorthEastern University on Uber’s surge pricing showed that demand for rides is highly elastic to price (a small increase in price leads to a large drop in demand), while the supply of rides (on behalf of drivers) is less elastic, which makes determination of the surge price hard. Based on anecdotal information (friends, family and self), elasticity of demand for Uber in India is likely to be much higher.

Uber’s anchoring problem stems from the fact that the “base prices” (prices when there is no surge) is anchored in people’s minds. Uber’s big break in India happened in late 2014 when they increased their discounts to a level where travelling by Uber became comparable in terms of cost to travelling by auto rickshaw (the then prevalent anchor for local for-hire public transport).

Over the last year, Uber’s base price (which is cheaper than an auto rickshaw fare for rides of a certain length) have become the new anchor in the minds of people, especially Uber regulars. Thus, whenever there is a demand-supply mismatch and there is a surge, comparison to the anchor price means that demand is likely to drop even if the new price is by itself fairly competitive (compared to other options at that point in time).

The way Uber has implemented its dynamic pricing is that it has set the “base price” at one end of the distribution, and moves price in only one direction (upwards). While there are several good reasons for doing this, the problem is that the resultant anchoring can lead to much higher elasticity than desired. Also, Uber’s pricing model (more on this in a book on Liquidity that I’m writing) relies upon a certain minimum proportion of rides taking place at a surge (the “base price” is to ensure minimum utilisation during off-peak hours), and anchoring-driven elasticity can’t do this model too much good.

A possible solution to this would be to keep the base fare marginally higher, and adjust prices both ways – this will mean that during off-peak hours a discount might be offered to maintain liquidity. The problem with this might be that the new higher base fare might be anchored in people’s minds, leading to diminished demand in off-peak hours (when a discount is offered). Another problem might be that drivers might be highly elastic to drop in fares killing the discounted market. Still, it is an idea worth exploring – in my opinion there’s a sweet spot in terms of the maximum possible discount (maybe as low as 10%, but I think it’s strictly greater than zero)  where the elasticities of drivers and passengers are balanced out, maximising overall revenues for the firm.

We are in for interesting days, as long as stupid regulation doesn’t get in the way, that is.

Finally some sensible Uber regulation

Ever since Uber launched, regulators worldwide haven’t had a clue as to how to regulate it – it has been such a big disruptor in the taxicab market. Some countries and cities have taken to banning it outright (the list is too long to post links here). Others (such as some states in India) have tried to get Uber to register itself as a “taxicab company”.

The problem with all these regulations is that the Uber model (being replicated by firms such as Ola and TaxiForSure in India) is a fundamental gamechanger. As I have written in this earlier post, the on-demand model propagated by Uber implies that a number of the inefficiencies in the taxicab market don’t exist any more. In this context, trying to regulate it by moving it back to the earlier (extremely inefficient) model is extremely regressive. The right way to regulate is to create a level playing field for taxicab aggregators (which includes Uber) and move the market to a regime where the new technology-enabled efficiencies are made good use of.

And that is precisely what Los Angeles has done. In a rather progressive move (which ought to be copied by other states and cities and countries), the city has decreed that all city-based cab operators need to offer app-based booking services. The interesting bit in the regulation (see link above) is that drivers who fail to install the e-hail app are actually going to be fined.

What this will lead to is that the local taxi market is itself going to become more efficient which should definitely increase both profitability for the local cab industry and also availability of local cabs to the people of LA. What this will also do is to give people of LA a choice between using Uber and the traditional taxi app, which will lead to an improvement in Uber’s service levels. As things stand now I don’t see any downside from this LA regulation.

I hope the model succeeds in LA and other cities see the brilliance of the model and accept the efficiencies brought into the market thanks to this model and adopt similar regulation. I see this kind of regulation coming into the Bangalore market though the backdoor though. Ola already helps match auto rickshaws to customers and now TaxiForSure is also getting into that market. Will this mean that autos won’t have to line up for hours together in front of Lalbagh gate for passengers arriving in the city by bus?

Oh, and LA is not the first city to implement regulations requiring taxis to be “hailable” via an app. When I visited Singapore in November 2013, I found that cabs in the city worked the same way. Locals had an app which they would use to call taxis. The problem there though was that the app was only available to locals (your android/iOS had to be registered in Singapore for you to be able to even install the app), which made it a nightmare for us tourists to move around.

Oh, and while on the topic, a good revenue source for companies such as Ola or TaxiForSure would be to provide the technology backbone to cities that are seeking to use app-based hailing services for their cabs.