Ridesharing Mythbusters: Examining 6 Common Misconceptions

Lithuania has witnessed a rise in ridesharing industry which spurred a great competition for taxi service providers. Ridesharing has become particularly attractive for passengers and increasingly more drivers engage in ridesharing as an extra source of income. Despite the rise in popularity, accusations of market anarchy prevail.

Myth no. 1. Drivers are not subject to any requirements. False. Requirements for drivers exist. The difference lies in that ridesharing app administrators, but not the government impose them. Cars have to be clean and tidy, relatively new and drivers themselves could not provide services if they were fined for speeding or convicted for a felony. Moreover, it is a feedback-based mechanism. If a car is not tidy enough or the driver is unpleasant or gets lost in the city, the passengers are free to give a poor rating. If a cumulative rating drops below the set minimum, the app administrator just throws the driver out of a system. Therefore, saying that there are no requirements for ridesharing drivers is an overstatement, to say the least.

On the other hand, taxi drivers have to pass an exam, medical examination and get a license from the municipality. Their cars have to go through a maintenance inspection more often, must have specific visual marking and certified taximeters. In fact, both taxi regulations and the requirements for ridesharing drivers share the same purpose that is passenger safety and accurate price calculation. The difference is that the same goals are achieved by either using a simple app or imposing complex regulations.

Myth no. 2. Cars are not marked in any way and cannot be inspected. True. There is no external visual marking. But is it really necessary when everything is tracked by an application? The marking requirements for taxi cars were introduced back in 1930s when fake taxi drivers called “nighthawks” used to take passengers outside of town and rob them. If people were not to comply, they would simply leave them outside of town in unfamiliar surroundings. The introduction of visual marking helped to solve the issue back then, but is it still relevant today? Nowadays, every trip is tracked by GPS and no one may use ridesharing apps without submitting their personal information. Marking the car for the sake of marking has become obsolete and so has this myth.

Myth no. 3. Municipalities cannot ensure high quality services. This is partially true. However, safety and quality are the specialist areas of app administrators while government institutions are clearly unable to solve quality and reliability issues. Numerous taxi passengers are driven around cities for 20 km when their actual trip should not exceed 2 km. This is simply not possible in the case of ridesharing. A simple solution of precise GPS tracking has successfully eliminated this fraud problem.

Myth no. 4. Uncontrollable ride prices. False. Even though prices grow as the demand for rides increases, surge pricing is key to ridesharing. Ridesharing platforms do not have a fixed number of participants; therefore, a temporary increase in prices helps to attract more drivers. In addition, the app always double checks if passengers are willing to pay more. This way ridesharing is able to meet the demand when, for example, it is minus 20 degrees outside and people are forced to wait for an hour for a cab to arrive. Can the prices get higher? Sure. But to say that it is uncontrollable is an exaggeration. Let us not forget that the taxi drivers themselves do not have a steady pricing and such an argument coming from their side sounds dubious, to say the least. Taxi prices differ on working days and weekends, while hailing a cab from Vilnius airport has been a debatable issue for years now.

Myth no. 5. Ridesharing drivers can avoid taxes and provide services illegally. False. Tax evasion is virtually impossible. To use the app, both the driver and the passenger have to connect their bank and app accounts. To be eligible drivers have to register their economic activity and pay taxes. When all bits and pieces are linked together, tax evasion is no longer a concern. In fact, ridesharing platforms simplify tax administration. That is why they are encouraged by the European Union.

Myth no. 6. Unfair competition will eliminate some of the market players. Sadly enough, this one is true. Businesses are regulated in a different manner. This creates different conditions for competition. But an important question to be asked when creating a level playing ground is not how to create a strict regulatory framework for ridesharing drivers, but which taxi regulations could be repealed to make this business sector similar to ridesharing. Why not start by evaluating if it is really necessary to have 80-year-old regulations? If these rules are not simplified and unified, some of the traditional taxis will be forced to go out of business.

Every time a new technological solution is disrupting a market, incumbent market players are shocked. Wire and mobile phones, printing machines and computers, telegraphs and the internet, etc. The important thing to do is not to give in to false information. Admitting that some regulations are outdated and obsolete is a difficult but right thing to do. Allowing taxi drivers to work in the same regulatory environment would be a right thing to do.