Since 2018, private companies started renting electric scooters on the street, with or without a city’s grace. As time passed, cities cut the number of firms operating locally, among them Santa Monica, San Francisco, Washington D.C., Portland.
People who like scooters have attacked these limits, in the belief that having fewer firms means less competition, and thus worse service (eg, higher prices, less vehicle availability, inferior maintenance, etc).
This belief is common, and likely valid when general consumer goods are considered, where markets span hundreds of millions of people, like with deodorant.
Competition in Urban Transport Services: The Exception
But free-for-alls are actually the aberration in city transport services; public transit, of course, almost always relies on a monopoly of given routes, to maximize economies of scale. Public transit isn’t quite as analogous, because once you pay to run a bus, driver and all, the cost of serving each additional passenger is small.
Municipal bikeshare, for one, heavily relied on local monopolies, in return for major concessions to the host city; bikeshares offered full time employment for workers, durable vehicles, and subscriptions that made rides affordable.
These bikeshares also had costly infrastructure in the form of kiosks for buying passes and docks to hold the bikes (both items that are mostly superfluous now, for pedal bikes anyhow); duplicating that infrastructure across multiple operators would be wasteful and ruinously expensive, to the point of making bikeshare unworkable.
If it ain’t broke, why fix it?
Scooters have done away with the kiosks, and the docks (mostly). And plenty of operators have joined the royal rumble of several operators duking it out in big cities. The open entry system appears to be working.
But some fixed costs remain; there is a certain minimum number of staff and resources an operator must procure, regardless of fleet size: a general manager, a warehouse, repair and rebalancing personnel, among others.
These fixed costs tend to make smaller fleets less viable. I have heard that a certain operator will not open in new cities without a fleet of at least 1,000 vehicles, presumably doing 3+ rides per vehicle per day.
With increasing pressure to cut costs in the face of enduring losses on scooter operations and a bearish investment climate (see WeWork), operators are culling their fleets. Lime pulled out of Tallahassee because it would only have 200 scooters there. Lyft has withdrawn its scooters from a number of smaller American cities as well, where it was up against multiple rivals leaving it a fraction of the market, as has Uber.
Why Should Cities Reduce the Number of Scooter Firms?
With operators getting choosier, a government process to select firms offers cities more discretion; limited entry helps level the playing field and give those of more modest means, like Hopr and OjO, and those without a national presence, like Helbiz, a chance — if they offer the most compelling service. That means more real choice, not less.
Indeed, the reduction in operators has been driven by city officials and their interests. Having fewer firms means cities need fewer resources to ensure compliance, and must communicate with fewer parties; more operator efficiency lets cities capture value through more demanding terms, say, more maintenance, higher sustainability, higher wages, or lower prices. San Francisco and DC, for example, are subjecting operators to greater scrutiny through the selection process. Asbury Park, NJ allows only Spin, which charges $0.15 a minute there, instead of the usual $0.25+ elsewhere.
There would be a stronger case for more operators, if they offered distinctive products that appealed to different users and trip types. But overwhelmingly, they don’t: the products are similar, if not from the very same manufacturer.
To make sure all bases are covered, cities can and do offer permits by vehicle type, as Santa Monica and DC did with separate permits for e-bikes and scooters; future selections should distinguish between scooters with and without seats (aka light mopeds), which show early promise of better stability, safety, trip distance and comfort. Different vehicle types serve different needs, and cities should strive to cover all of them. Officials should be careful to consider what riders want from a service, alongside other public concerns like sustainability, workers’ rights and compliance.
As the industry matures, even the larger cities will increasingly settle on one, perhaps two, operators per form factor, beginning in 2021–2022.
Cities can also now consider an operator’s track record elsewhere, instead of allowing every operator that checks all the boxes. An operator’s actions in one city may affect its prospects in another, rewarding those with good conduct everywhere.
Critics of limited entry have not addressed any of these benefits; instead, they mostly repeat the mantra of the more competition, the merrier. They fail to consider the geographic economies of scale of transport, and disregard the government burden of oversight. Only an abstract defense of competition is offered, because there is no evidence yet of entry limits hurting riders generally.
Limiting Entry & Antitrust
When it comes to competition, there are two general approaches regulators take to gauging whether a market is competitive. The more lax approach aims to assess whether consumer welfare is harmed compared to a market with more rivals. A stricter standard considers whether too much of the market is in too few hands.
The practice of limiting entry fares well on both counts: it shows no harm, and possible benefit, to consumer and public welfare; and it allows more companies to try to compete, by spreading a firm’s fixed costs over more market share. It’s cheaper to compete for a permit than to enter an oversaturated market, because this is a brick and mortar service, not software publishing with near-zero cost of entry.
Cities could facilitate the spread of best practices by doing as Santa Monica and San Francisco have done, and publishing company proposals, so that other companies can learn from the winning submissions. This is a core tactic of tech companies themselves: commoditize your suppliers to give yourself maximum choice, value and leverage, only this time it’s cities reaping the benefit.
The fact that Denver, Paris and other cities have independently arrived at the same solution of limiting entry after a period of open entry is suggestive. If problems arise with a given operator, there are plenty of alternative vendors in the offing, ready to step in, if sufficient notice is given. After permits for two operators in Auckland, New Zealand were canceled, four operators signed up to take their place. Auckland officials specifically mentioned better safety features among vehicles of the newly selected operators.
There have been high profile examples of prevailing operators being forced to leave despite a respected record, unfortunately — principally, Skip in San Francisco. This is a peril of limited entry, but it is not inescapable, if officials give due consideration for prior performance, sufficient notice of contract termination, and use a somewhat fault-tolerant contracting process.
Riders also benefit from limited entry, by needing fewer apps and accounts to access all the scooters in their city; with vehicles being mostly the same (for now), riders mostly just want whatever scooter is closest. Some apps require users to pre-pay for rides in increments of $5+. Having eight different scooter apps and credit accounts is not a happy outcome. Open payment interfaces to fix this mess are years away, and don’t address the issue of duplicative operator infrastructure.
While limiting the number of firms has its merits, there is perhaps an even more influential variable: how many vehicles to allow, for maximum public benefit. This will be tackled in a subsequent article, on regulating scooter volumes.
