Everyone can win in Newark Uber dispute | Opinion

By Star-Ledger Guest Columnist
Follow on Twitter
on April 27, 2016

By Matthew Hale   

Over 30 years ago political economist Bruce Yandle described how Baptists and bootleggers both gained from local government prohibitions on selling alcohol on Sunday.

Baptists liked the ban because they had an accomplishment to talk about to the flock. The bootleggers liked it because they could charge a premium to the flock for their post services cocktail. The local governments implementing the prohibition were happy because they managed to satisfy the demands of two very different constituencies.

Yandle also argued that if local government really wanted to "solve" the problem of drinking on Sunday, then charging a special Sunday tax would have probably been more effective than an outright ban and had the added benefit of filling the local government coffers with additional tax revenue.

Recently, the city of Newark has been having a high-tech version of the Baptist/bootlegger conversation with new-tech "bootleggers" airbnb and Uber and the "Baptist" hotels and taxi companies. How these discussions have played tells us a lot about the two companies, the markets they serve and the politics in Newark.

The differences between the two negotiations are stark, even if the outcomes are similar.

Under the agreement with Airbnb, the city will receive a 6 percent tax on all Airbnb rentals and limit the number of units that can be rented out. According to published reports, Newark expects this will add an additional $750,000 per year to its coffers.

Airbnb called the agreement a "smart and fair way to regulate online home rentals." Even New Jersey's restaurant and hotel association, which represents traditional hotels, had to agree that this was a sensible agreement. The negotiations were by all accounts quite civil.

Under the agreement with Uber, the ride-hailing company will pay a $10 million license fee to operate at Newark Liberty International Airport for the next 10 years. It will also provide insurance, background checks and drug testing for drivers.

Unlike Airbnb, however, before the deal was reached, the negotiations were highly public and quite nasty. The taxi drivers (Baptists) are still not happy, saying the agreement does nothing to even the playing field.

The differences in the bootlegger and Baptist responses to Newark's regulation attempts might be because Uber is being asked to regulate and monitor its drivers and cars in a way not asked of the hosts and rooms offered by Airbnb. The differences might also be because the Baptists in the Airbnb case are not as threatened by the bootleggers. Hotels can offer services like restaurants, conference rooms, gyms and maid service that Airbnb can't.

Uber cars and taxis are essentially the same thing and differentiation on services are more difficult to tease out. All of these factors help explain why we saw vitriol with Uber and hugs and kisses with Airbnb.

The other important difference in the agreements is that while the Airbnb agreement is likely to lead to long-term stability, there is a decent possibility that the Uber fights this time around will come back up.

This is because the Uber agreement has a 10-year time limit, and because the Uber agreement conveniently ignores adjustments to Uber's dynamic surge-pricing model. This model means the same car trip can cost three or four times as much when demand is high and is the primary competitive advantage bootlegger Uber has of the Baptist taxi.

Just as a Sunday tax on alcohol might have been more effective than a ban; if Newark officials were truly interested in "solving" the Uber/taxi inequalities, they would have tried to address this issue. Someday they may have to.

However, at the end of the day, the main similarity between the agreements may be even more telling. In both cases, the city government of Newark won. Newark will get close to $20 million in new revenue over the next 10 years.

In addition, Newark got two private companies to largely pay for the implementation costs of collecting that revenue. That is clearly a big win for Newark city government. The Airbnb negotiations for sure and maybe eventually the one with Uber can be models that other jurisdictions around the country can copy.

Newark a leader? Wow, that is an accomplishment.

Matthew Hale is an associate professor and director of the Master's in Public Administration program at Seton Hall University.

Do you like this post?

Be the first to comment