Markets Wired

Federal Trade Commission staff submitted written comments to Alderman Brendan Reilly of the Chicago City Council, in response to a request for comments on a proposed ordinance that would provide for the licensing and operation of transportation network providers (TNPs), particularly software applications that enable consumers to arrange for transportation services via personal vehicles.

According to the comment by staff of the FTC’s Office of Policy Planning, Bureau of Competition, and Bureau of Economics, applications for arranging transportation using personal vehicles may expand transportation options, better satisfy consumer demand, increase competition, and promote a more economically efficient use of personal vehicles.

The comment states that, if regulation of TNP services are warranted at all, they should “focus primarily on ensuring the safety of customers and drivers, deterring deceptive practices relating to fares, safety and liability, and other terms of use, and addressing other consumer protection issues, especially data security and the prevention of identity theft.” In particular, “[r]egulations should not in purpose or effect favor one group of competitors over another or impose unnecessary burdens on applications or drivers that impede their ability to compete without any justification that benefits the public interest.”

The comment notes that some provisions in the proposed ordinance may unnecessarily impede competition, such as requiring an annual $25,000 fee for a non-transferable TNP license. The city council should “carefully consider the justification for and effect of these fees on TNPs and competition,” the staff comment states.  The comment recommends that any such fees should be no greater than necessary to cover administrative costs and structured in a way that avoids unnecessarily inhibiting or deterring TNP entry and expansion in the marketplace.

Another provision in the proposed ordinance would permit TNPs to calculate fees for their services in only three ways and does not expressly recognize or permit demand-based pricing, which can be more responsive to consumer preferences than fixed pricing models. The comment recommends that, absent evidence that a particular pricing model will harm consumers, the ordinance “should clearly allow for greater flexibility and experimentation in structuring fees in order to facilitate innovative forms of pricing that may benefit consumers. To the extent that evidence of such harm is received, any restriction designed to address that harm should be narrowly crafted to minimize its anticompetitive impact.”

The proposed ordinance also would require each TNP to have significantly more liability insurance coverage than is required for taxicab licensees and other comparable public passenger vehicles and would prohibit TNP drivers from picking up or dropping off passengers at O’Hare International Airport, Midway International Airport, or McCormick Place convention center. Further, it would prohibit TNP application firms from owning vehicles, providing financing for obtaining, leasing, or owning vehicles, or having a beneficial interest in them, and prohibit TNP vehicles from displaying commercial advertising. The comment urges the City Council to consider the probable anticompetitive consequences of these restrictions, whether each of them is supported by evidence of harm to consumers or other public concerns, and whether there are less restrictive options available to achieve public benefit without inhibiting competition.

Finally, the comment notes that the proposed ordinance would require TNPs to make available operations records and certain customer, driver, and trip data to the city. The staff comment suggests that the City Council consider whether this information is needed and, if so, for what purpose. The comment cautions against publicly disclosing or sharing operational information, such as real-time trip data, among competitors involved in facilitating or supplying passenger vehicle transportation services. “If shared, this sort of data might compromise proprietary business strategies and facilitate tacit or explicit collusion among competing service providers. Such collusion would harm consumers through, for example, higher prices, decreased output, decreased quality, or reduced innovation. Any such information, therefore, should be treated as confidential business information.”

The Commission vote approving the comments was 4-0. (FTC File No. V140007; the staff contact is Christopher Grengs, Office of Policy Planning, 202-326-2612).

The FTC’s Office of Policy Planning works with the Commission and its staff to develop long-range competition and consumer policy initiatives, consistent with the FTC’s unique mission to conduct research and engage in advocacy on issues that affect competition, consumers, and the U.S. economy. The Office of Policy Planning submits advocacy filings; conducts research and studies; organizes public workshops; issues reports; and advises staff on cases raising new or complex policy and legal issues. To reach the Office of Policy Planning, send an e-mail to opp@ftc.gov. Like the FTC on Facebook, follow us on Twitter, read our blogs, and subscribe to press releases for the latest FTC news and resources.