Uber declares war on Taxi Monopoly: Market economy strikes back

Berlin – written by Marco Duller and Wolfgang Kuhlmann, translated by Stefan Müller.

Taxistand am Flughafen Tegel in Berlin. Foto: Matti Blume, MB-one / CC BY-SA 2.0 DE

Taxi stand at Tegel Airport in Berlin. Picture: Matti Blume, MB-one / CC BY-SA 2.0 DE

The regional court of Frankfurt has made a decision in the battle of “Taxi Deutschland” against the ridesharing service called “Uber”: It passed a writ of injunction prohibiting Uber’s operations nationwide (AZ 2-03 O 329/14). In case of violation, Uber faces penalties of up to a quarter of a million Euros.

This controversy also includes the question of what stand Germany takes, economically as well as judicially, concerning new technologies, business models and ideas which the internet offers. Essentially, this means: freedom or preservation of the status quo?

Ridesharing: Not a New Invention

Apart from general, market-based considerations, it has to be judicially clarified whether the ridesharing service needs a permit according to article 1 of the Passenger Transportation Act in order to legally provide its services. Neither Uber – using the app “Uber Black” and “Uber Pop” – nor the users which offer their services possess such a permit.

However, ridesharing is a concept that has been in place for a long time. The idea is simple: A driver offers a ride on a platform and charges a fee. The driver benefits from decreased costs, his fellow passengers can travel cheaply from point A to point B. At the same time, individual transport is reduced.

VCs strengthen Uber with $1.2 billion
Logo des Unternehmens Uber. Quelle: Uber

Logo of Uber. Source: Uber

Uber was founded as a service for sedan cars in the US in 2009 by Garrett Camp and today’s CEO Travis Kalanick. It transferred the general idea of ridesharing to regional and inner-city traffic. While this concept faces sharp criticism and protests in Europe – especially from taxi drivers and their unions – it has convinced various famous investors in America: Benchmark Capital, Goldman Sachs, Google Ventures, First Round Capital, Menlo Ventures as well as Lowercase Capital all have a share in Uber, according to their statements. Only in June the VCs provided Uber with further venture capital of $1.2 billion.

The financial equipment of the young start-up company clearly shows its objective and leaves no doubt about the fact that Uber is also willing to radically establish its business model and range of services in regulated markets and countries. Thus, right after the verdict of the 3rd civil chamber, Uber announced that it will ignore the writ of injunction and continue to conduct business in all of Germany. The company knows that the penalty of €250k per ride will not immediately be due in full. Furthermore, the Supreme Court has yet to decide whether Uber’s services are generally illegal or not. If a higher court was to nullify the Frankfurt verdict, Uber could sue for damages. That is exactly why a taxi driver from Berlin has once already refrained from having a writ of injunction executed.

Taxi Deutschland wants to enforce penalties with test drives
Taxistand in Ravensburg. Foto: Fabian Börner / CC-by-sa 3.0/de

Taxi stand in Ravensburg. Picture: Fabian Börner / CC-by-sa 3.0/de

One can assume that Uber would radically enforce its claims for damages – against everyone who might have rebelled against them – if the writ of injunction was repealed. The dispute has become too severe, too personal already.

For instance, Taxi Deutschland announced to start booking test drives with Uber in order to collect judicial evidence and plead for monetary penalties against the company. This clarifies the taxi industry’s course of action: Judicial measures will be fully employed. Also, by denunciation, they aim at harming their competitors financially as well as weakening their market position.

However, considering Uber’s financial power, Taxi Deutschland’s strategy could backfire badly. Uber will be able to survive the course of escalation for a long time. Furthermore, one can assume that the investors behind the start-up are specifically seeking confrontation with the regulators. The billions worth of cash injection is a clear signal: They expect revenues and profits, otherwise they would not have invested and remargined at the sight of controversy.

Is Uber really that much cheaper than taxi cabs?

The taxi industry’s interests are as understandable as they are justified: The situation of German taxi drivers is difficult as it is, but Uber could worsen it even further. However, Uber’s opinion is that progress cannot be stopped; a position that evokes empathy. How reasonable is the “declaration of war” against Uber?

Taking a look at the current services of Uber Black shows that rides via this app are not that much cheaper compared to a taxi cab. On the Uber website, the following information can be found: basic charge of € 4,50 plus € 0,40 per minute and € 1,15 per kilometer, however, the minimum charge is at € 9. The service is nothing new. Sixt has introduced it under the name of “mydriver” in many cities.

Nevertheless, Uber Pop is different. Basic charge of € 1, € 0,35 per minute and € 1 per kilometer. The route from “Ku’damm” to Tegel Airport, which is usually between € 15 and € 17 by taxi, Uber Pop charges € 14 to € 18 whereas Uber Black rates at € 19 to € 24. An enormous price advantage cannot be seen in this equation.

However, taxi organizations refer to their “monopoly”, which the German Passenger Transportation Act guarantees. According to article 47, taxi companies need to have permits and can only pick up customers at certain determined places or during a ride. Also, taxis can only operate in municipals in which the respective company’s headquarters are located.

This is what certain states – such as Hamburg and Bremen – referred to when they prohibited Uber Pop. Both of their bans were brought to court while a decision is still pending. The important thing is, however, that the states themselves refrained from having the writ of injunction executed. Hence, in the court of law, there has not been a final victory over Uber yet.

Preservation of the status quo or innovation?

The controversy around and against Uber will presumably occupy German courts for several years to come. This clearly shows that Germany – from a market economy perspective – cannot measure up to the new possibilities that the internet and e-commerce offer. The economic debate over “shared economy” – i.e. interconnected mobility, emission targets and the “new generation” that does not need or want an own car – mostly ignores judicial reality in Germany.

So far, German laws like insurance protection, the Transportation Act or general liability concerns obstructed the development of new markets and prevented them from being created by new technologies and opportunities of the internet. Fear, skepticism, the protection of the old status quo and the preservation of regulations that might have been reasonable in times of 56k-modems at best, are inappropriate.

The political task is to create new markets, on which companies can and must compete for customers. Also, it needs to encourage innovation and guarantee security and reliable ground rules. Its highest goal should therefore be the setting of a general framework at the advantage of everyone – nothing more, since in the end, customers will decide on success or failure.

About this article:

The article „Uber declares war on Taxi Monopoly: Market economy strikes back“ was first published as article in German language named „Uber sagt Taxi Deutschland den Kampf an: Die Marktwirtschaft schlägt zurück“ on September 3rd, 2014 at dgfhp.wordpress.com. Translation by (c) Stefan Müller.

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