Ride-sharing apps like Uber and Lyft have faced major opposition from existing t
ID: 1124803 • Letter: R
Question
Ride-sharing apps like Uber and Lyft have faced major opposition from existing taxi services as they have expanded into new cities, and in some cases have been banned and prevented from entering. Often, the cities banning these services have a small number of large preexisting taxi companies. Consider a hypothetical city in which the two major preexisting taxi companies stand to lose $350,000 in joint profit if these ride-sharing services enter and compete. Assume the benefit to consumers in the form of lower prices for rides would be a total of $450,00
Answer the following questions regarding this possible law.
From the standpoint of economic efficiency, banning competition from ride sharing services is economically (efficient/inefficient)
Banning the entry of these ride sharing services would create Banning the entry of these ride sharing services would create Banning the entry of these ride sharing services would create (concentrated beliefs and cost),(widespread benefit and widespread cost), (widespread benefits and concentrated costs), (concentrated benefits and widespread costs)
Because the small number of existing taxi companies would be willing to spend up to (350,000)/(450,000)/(250,000)/(150,000) in expenditures to lobby the government to ban these services, while the thousands of consumers would likely either not know about the policy or would not find it worthwhile to lobby, the special interest legislation banning ride-sharing services would probably (fail/pass) if subjected to political decision making.
Explanation / Answer
1.
Inefficient
Since, the entry of ride sharing services will reduce the price and increase the competition, then banning these services will add to the inefficiency to the market.
2.
Concentrated benefits and widespread costs
The ban will give benefits that is concentrated to the few taxi services and cost will be spread to the whole consumer groups who want to ride the cheap and quality rides.
3.
$350,000
It is the benefit, earned by the few existing taxi services, then they will spend the amount upon lobbying the law.
4.
Pass
Law will be passed because the consumers will not lobby against it.
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