We’re in the midst of an unfolding revolution in transportation technology, thanks to the advent of transportation network companies. By harnessing cheap and ubiquitous communication technology, Uber and other firms organizing what’s being called “ride-hailing” services have not only disrupted the taxi business, but are starting to change the way we think about transportation. While we think of disruption here as being primarily driven by new technology, the kinds of institutional arrangements—laws and regulations—that govern transportation will profoundly determine what gains are realized, and who wins or loses.
Right now, Uber has an estimated market value (judging by what recent investors have paid for their stake in the company) of nearly $70 billion. That’s a whopping number, larger in fact than say, carmakers such as Ford and GM. It’s an especially high valuation for a company that has neither turned a profit nor gone public, thus subjecting its financial results to more outside scrutiny. Uber’s generous valuation has to be based on the expectation that it’s going to be a very, very large and profitable firm, and that it will be as dominant in its market as other famous tech firms—such as Microsoft or Google—have been.
The importance of competition
For a moment, it’s worth thinking about the critical role of competition in shaping technology adoption and maximizing consumer value. Take the rapidly changing cell phone industry, which has increasingly replaced the old wire-line telephony of the pre-digital era. Back in the day, phone service—especiallylocal phone service—was a regulated monopoly. It barely changed for decades. The two biggest innovations were princess phones (don’t ask) and touch-tone dialing.
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