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Friday, July 17, 2015

Uber vs. the State, 1851 Edition

An early case of protectionism reveals the logic of anti-competition regulation

Gales v. Anderson (1851) is an interesting Illinois case that — in an echo of the Charles River Bridge case two decades earlier — found that a law establishing a ferry across the Mississippi would not be presumed to forbid the state from allowing other ferries to start up. 

The people who held the permit to run the ferry complained about the fact that after they had been running their ferry for a while, the county granted a permit to another business to operate a competing ferry nearby — thus interfering with their grant.

But, they insisted, they weren’t arguing in favor of a monopoly in the ferry business — no, they pointed out that their permit actually required them to run more frequent ferries if demand so warranted.

Therefore there was no danger of a monopoly, because they could be trusted to operate more ferries if need be. This proved that there was no necessity for a new ferry company to compete against them, and that the government should not have granted the second company a permit.

This is precisely the same argument made today by existing taxi monopolists who oppose the introduction of Uber and other ride-sharing companies. They argue that their government licenses entitle them to be free from such competition — but that this isn’t a monopoly because the licenses require them to operate more taxis if sufficient consumer demand is proven.

We can trust them, in other words, to operate without free competition because, after all, the government has ordered them to serve any increase in demand.

In the Gales case, the Illinois Supreme Court rejected this argument, for reasons that apply equally well a century and a half later:

If [government officials have] a right to grant a ferry license in such a way as to prevent [them] from establishing other ferries, which, in their judgments, or in the judgments of their successors, the public good might require, they might impose an intolerable burden upon the community for all time to come.

It is no answer to say, that the law enjoins upon the grantees of the franchise to put on as many boats…as the public convenience may require. … 

If the commissioners have the right to grant to one man, or one company, the entire monopoly of ferrying to and from a particular city, they may grant to one an exclusive right to do all the ferrying in the county; and such a monopoly would not only shock the sense of propriety of every reflecting mind, but would be in palpable violation of the spirit and intent of the law.

We all know…that, where there is an extensive line of travel, the public accommodation is not sufficiently subserved by placing in the hands of one man, or one company, an exclusive right to do all the ferrying, although they may be required by law to provide sufficient boats to do the business.

The terrors of a legal prosecution are not sufficient to procure that prompt, eager and zealous desire to accommodate the public which are secured by the stimulating influence of rivalry. The evidence in this case shows that the ferry-men upon the complainants’ boat were much less accommodating, and that the public was much less efficiently served, before [their competitors’] boat was put on, than has been the case since. 

Formerly, it was a very common, if not a universal, practice, on the complainants’ boat, to refuse to carry over a single passenger or team; but they would wait till others should arrive before they would make the trip; and it was not unfrequent [sic] for them to delay for hours, for no other cause.

We are also told by the witnesses, that the public convenience has been materially promoted by the establishment of a new ferry, in securing the passage of the river at times when the old ferry could not or did not run. During one winter, the horse ferry-boat run from fifty to sixty days, when the steam ferry-boat refused to cross at all, but was laid up; and yet, if it had not been demonstrated by the actual running of the defendants’ boat, it might have been very difficult to establish in a court of justice that, during that time, the complainants’ boat might have been run with safety.

These considerations…show the wisdom of the law in withholding from the county commissioners’ court the power to grant a license which will prevent them afterwards from establishing such other ferries as the public good may require.

Emphasis added.

Cross-posted from Freespace.