Introduction
Since transportation network companies such as Uber and Cabify began operating in Mexico City, much controversy has arisen regarding their regulation. Taxi drivers have contended that such companies are illegal and have requested the Mexico City government to ban them. In response, the city government initiated a series of negotiations with the parties involved regarding the regulation of the provision of transportation services through electronic platforms.
On June 10 2015 the Federal Economic Competition Commission (FECC) issued a non-binding opinion about the issue.(1) The FECC recognised that transportation network companies constitute a new alternative for consumers and aim to provide a technological solution to the information asymmetries characterising the transportation services market. For this reason, the FECC recommended that the applicable transport regulation be modified to recognise this new form of service without imposing anti-competitive barriers.
On July 15 2015 the Mexico City government published the regulation which derived from the negotiations; it enters into force in August 2015. The regulation guarantees the legality of the services provided by transportation network companies.
The preamble to the new regulation recognises that these electronic platforms help to reduce search costs usually faced by consumers and allow consumers to obtain transportation services more quickly. Additionally, it acknowledges that electronic platforms provide consumers with security filters which allow them to identify the car and identity of the driver in advance. However, the Mexico City government considered it a matter of public interest to impose limitations on how these services are provided.
According to the preamble, the regulation was designed with the principle of efficiency in mind and seeks to promote flexible and affordable travel, optimising available resources without creating negative externalities. Nevertheless, the regulation does not necessarily fulfil those standards. On the contrary, it may impose unnecessary limitations which could hinder competition between taxis and transportation network companies.
In particular, the regulation distinguishes between companies administering electronic platforms which provide transportation services through taxis (eg, EasyTaxi) and those providing such services through private vehicles (eg, Uber). The regulation requires both types of company to register both their business and the taxis or private vehicles that are part of their electronic platform.(2)
However, the regulation imposes a series of limitations and additional requirements which apply only to companies administering electronic platforms that provide transportation services through private vehicles – in particular, the following:
- Private vehicles providing these services must be no more than five years old, be worth at least Ps200,000 (approximately $12,400) and have four doors, air conditioning, airbags and radio;
- Such companies may accept only credit card payments and not cash or any other means of payment;(3)
- The number of private vehicles subject to registration will be "limited by supply and demand, considering the power of choice of the people which allows the effective displacement within the city"; and
- Such companies must contribute 1.5% of their income to a "Fund for taxis, mobility and pedestrians" to improve the services provided by taxis.
In this respect, it is unclear how the "fund for taxis" will operate, what the justification is for these companies to subsidise taxis and which criteria were followed to establish the specific amount of 1.5% of their income as their contribution. Moreover, it is also unclear how supply and demand will be measured to determine the maximum number of private vehicles subject to registration. Finally, no explanation has been given as to why private vehicles must meet the specific requirements imposed by the regulation in order to be able to provide these services.
Considering the foregoing, the regulation creates unnecessary barriers to entry for companies and private vehicles aiming to provide transportation services through electronic platforms. It could also distort the efficient functioning of the transportation services market and inhibit competition between taxis and private drivers. Indeed, the regulation prohibits private drivers from providing their services to consumers without credit cards or with cheaper, less-equipped vehicles.
Thus, the regulation segments the market for private drivers and taxis, creating an 'elite' service separate from the 'standard class' service provided by taxis. This will most likely result in:
- a reduction in the number of private drivers providing services and an increase in their prices;
- fewer incentives to improve taxi drivers' services;
- suppression of innovation; and
- a restriction of competition between transportation network companies and taxis.
The regulation does not address the real problems present in the taxi transportation market;(4) nor does it take into account the FECC's recommendation that regulation be kept to a minimum. For these reasons, some observers believe that it will serve only to favour political arrangements between the Mexico City government and interest groups.
On a positive note, the regulation ensures that the services provided by transportation network companies will remain legal. Nevertheless, it is probably not the best solution from an economic competition perspective.
For further information on this topic please contact Lucia Ojeda Cardenas at SAI Consultores SC by telephone (+52 55 59 85 6618) or email ([email protected]). The SAI Consultores website can be accessed at www.sai.com.mx.
Endnotes
(1) Available (in Spanish) at www.cofece.mx:8080/cfcresoluciones/docs/Mercados%20Regulados/V6/16/2042252.pdf.
(2) The regulation does not require registration of the taxi driver's identity.
(3) This prohibition may discourage the development and innovation of other means of payment, such as pre-paid cards.
(4) In practice, existing governmental controls on supply, applicable tariffs and consumer security have proven to be inefficient and insufficient.
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