Why should the Internet be regulation-free?

Sometimes the Internet enables new ways to compete in a market that would be inconceivable without it. These businesses may be new and radical, but they still provide goods and services in competition with conventional businesses. Shouldn't they be subject to the same rules and regulations as those businesses?

I'm thinking of Airbnb and Uber in particular, but there are probably other good examples. (Please comment on them and discuss the implications.) It's no surprise that conventional competitors — hotels, taxis, car services — are upset about new business intruding on their turf, but not all their complaints are entirely self-serving. Here I'm going to focus on Uber.

This subject shares a lot with my recent column on how interstate Internet commerce should be just as subject to sales taxes as brick and mortar commerce, and a debate that followed with my colleague David Gewirtz. These new businesses should compete on their own merits, but if only the old economy versions are subject to taxation and legal regulation then it's not a fair competition — government is, in effect, giving an unfair advantage to the new economy.

Consider this report from Marketplace, a business radio show from American Public Media, on the impact of ride-sharing services (basically Uber) on taxis and other conventional business. Many of the reasons people love Uber are feature, like the app, that taxis could also do. As the taxi owner in the Marketplace segment freely admits, a big part of it is customer service. People have low expectations of customer service in a taxi, and Uber plays this game at a much higher level. In fact, taxis are starting to catch on, as the glowing reviews for Hailo, an app for hailing a New York city yellow cab, show (4.8 out of 5 in Google Play, with 89% of the reviews at 5).

But there are a lot of rules that taxis have to legally follow, although these differ from city to city. Want a ride to a bad neighborhood? A taxi can't legally say no, but good luck finding a willing Uber driver. City governments love to make rules about taxis, and all of them impose cost on taxi owners and drivers. Finally, taxis also have regulated rates. Uber is a free market.

I didn't need Uber to realize many years ago that taxi regulation is largely stupid and counterproductive, and the free market is a much better solution. You know how you can't get a taxi in Manhattan in the rain? That's because only a certain number of taxis are allowed to operate (legally). If there were no such regulations new taxis would show up to meet demand, and that's soft of what Uber is.

I still feel sorry for taxi owners though. A taxi medallion in a major city is a major investment, and deregulation will, in effect, kill the value of that investment. I don't know that there's a fair way out of this; there's actually an argument for buying out the medallion owners, or at least giving them some compensation. But this shouldn't be viewed as a reason to perpetuate an inefficient, anti-competitive system.

So should the Internet be regulation-free? The question is misplaced. It shouldn't be any more or less regulated than conventional commerce, and the specifics depend on the case. In the case of taxis vs. ride-share, the rise of Uber proves the futility and counter-productivity of regulation.