UBER AND OTHER TRANSPORT APPLICATIONS IN SÃO PAULO

São Paulo, Brazil, July 20, 2016.

Luiz Fernando Plastino Andrade, Rothmann Sperling Padovan Duarte Advogados, Email: landrade@rothmann.com.br

Transportation is one of the greatest challenges regarding urban planning, especially in a bustling metropolis like São Paulo. The city has grown quickly and erratically in the Twentieth Century and, a few decades into the Twenty-first, it is now struggling with serious deficit in public transportation. Both the government and the private sector have been seeking for alternatives to automobiles with a single occupant for some time. Recently, Uber and other firms are taking advantage of this situation, establishing themselves as viable means of transportation within the cities in which their services are provided.

In this context, services like Uber at first view seem a blessing. Being overall cheaper and arguably more comfortable and reliable than ordinary taxi services, with stricter codes of conduct and specifications, they provide serious incentives for people to leave their own cars at home. This means fewer vehicles crowding the streets, more parking spaces available for those who need it, and a most welcome slack to the public transportation system, thus improving overall traffic welfare. Uber also increases competition within the cab service market as it provides an alternate means of transportation in the same niche traditionally occupied by ordinary taxi services without the need for permits and bureaucracy, disrupting the established situation in said market. Healthy competition among cab service providers should mean benefits to the costumers of said services, as it leads each player to struggle to be more attractive for the demand than the others.

That being said, it still seems that the more people tend to rely on services like Uber, the more they are prone to some practices such as surge pricing that may not be as desirable, besides being grounded in economic reasoning. Their pricing practices are of dubious legality in Brazil, since they feature fairly arcane fare formation algorithms, which befall in a grey area considering that Brazilian law calls for clear information of prices to the costumers. The nature of the service itself is also hotly debated, since the company’s claim that Uber is simply a sharing-economy platform used by independent drivers, yet the services are rendered in a quite similar fashion to ordinary taxis, including the intensive use of municipal motorways and public spaces.

Thus, these services are of great concern for both lawmakers and spokespersons of the civil society. Some call for stricter, taxi-like regulations, or even propose that such services be banned altogether. These proponents are often skeptic of the unregulated markets and have an understanding that only under government supervision could such essential services be free of mishandling. On the other hand, there are also free-market enthusiasts which argue that, contrary to this belief, closed and overregulated markets are what gives margin to abuse, since costumers would not be free to choose better services over a few sanctioned ones, while competition would create an environment in which only the most reliable firms would thrive.

In this regard, both radical views tend to be off their marks. Too regulated markets tend to eliminate incentives for firms to improve on their services without the fear of competition, while keeping loose reigns on technology service markets tend to lead to natural monopolies in which firms are left free to impose their own terms to the costumers, who are bound to accept them for the lack of better options. In tune with these views, the new regulations on transport applications passed in São Paulo try to tip the market onto an ideal equilibrium, opening the market to competition while trying to regulate key practices of the industry.

Municipal Ordinance nr. 56,981/2016 set companies relatively free to choose their partner drivers and exploit their activities, while putting on strict rules over pricing, cap fares, carpooling and registration, and also imposing fees for the use of motorways, charged per driven distances. The upside of this regulation is taking transport applications off the gray area and into legality with minimal regulation to try to accommodate the interests of multiple stakeholders, as legislation has been lacking in the field due to the abovementioned stalemate between them. The downsides are the possibility of chilling innovation in the industry and, as regards to costumers, a rather serious threat of violation of their privacy, since the new ordinance requires that the municipal administration is informed of the time and itinerary of every trip, which seems to be quite harsh and potentially illegal when confronted to legislation such as the Legal Framework of the Internet (Federal Law nr. 12,965/2014). The merits of such regulations, however, remain to be seen in practice, as the ordinance is set to be put in force gradually within the next couple of years. In the meantime, Uber has already started to adapt to the new regulations, for instance by offering a cheaper pooling mode for those who are willing to split a ride with strangers and by charging an additional amount from the users in São Paulo to recoup the municipal fees.

Services like Uber do have the potential to bring a sound contribution to São Paulo’s transportation system. They may present some risk to excessively dependent costumers, but no more than ordinary taxis already present in an overregulated market. Fine-tuning between freedom and regulation should be the answer to unlocking the most benefits from such services, while safeguarding the population from the downsides of their inception, and that is the direction recently taken by the municipal administration.


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