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CADE analyzes the competitive effects of the Uber’s entry in the market, especially over taxi apps

Competition

The study evaluated impacts at Brazilian municipalities between 2014 and 2016
by Assessoria de Comunicação published: Apr 23, 2018 05:17 PM last modified: Apr 23, 2018 05:43 PM

A study conducted by CADE's Department of Economic Studies (DEE, in its acronym in Portuguese) points out an increasing rivalry between Uber and the taxi apps throughout the time. The Working Paper, released earlier this month, assessed the competitive impacts of the entry of Uber in the market of 590 Brazilian municipalities, supported by data gathered between 2014 and 2016.

According to the study, Uber's presence in the market caused an average decrease of 56.8% in the number of rides derived from taxi apps, taking into account all the assessed municipalities. Besides, the study concluded that, for every 1% increase in the number of Uber rides, the taxi apps suffered a 0.09% decrease in their rides. This result indicates that Uber conquered new users as well as some of those who already made use of taxi apps services.

Narrowing the analysis of the competitive impacts of Uber to the 27 Brazilian capital cities, the study shows an average decrease of 36.9% in the number of taxi rides derived from taxi apps. In those cities, there was also a decrease of 7.8% in the average fare paid by kilometer through taxi apps. This result shows that taxi apps reacted to the entry of Uber in these locations, lowering prices (through discounts) charged by the service.

In addition, the document shows that the capital cities from the North and Northeast regions of Brazil – those in which Uber’s entry was delayed and occurred between May and December 2016 – perceived a 42.7% decrease in the number of taxi app rides. In contrast, in the capital cities from the South, Southeast and Midwest regions of Brazil, in which Uber’s entry started in the middle of 2014, there was an average decrease of 26.1%. According to the DEE, these data indicate that, initially, Uber’s entry in a municipality may have a great impact, lowering significantly the number of taxi rides. Throughout the time, though, the number of taxi rides increases gradually.

Furthermore, the study shows that, in a regional analysis, considering only the group of capital cities of the Southeast, South and Midwest regions of Brazil, the entry of Uber caused an average reduction of 12.01% in the fare of rides derived from taxi apps. The result points out that the taxi app sector reacted offering discounts to their rides after a larger period of exposition to a competitive environment.

Thus, DEE concludes that it is possible to verify a growing rivalry between the two kinds of apps. The study points out that the Uber market entry caused a decrease in the number of taxi rides, reactions through fare reductions and, finally, a recovery in the number of taxi rides derived from apps.

Regulation

The study also shows that the Federal Law nº 13.640/2018, which rules over private passenger transportation, was cautious to include safety norms and not to impose regulatory barriers to the entry, neither restrictions to fares freedom. According to the department, the authorities from the Brazilian municipalities, when it comes to formulating bills over the usage of those apps, should also avoid imposing standards that could hamper the operation of those services.

According to the DEE, it is important to mature the debate towards the gradual deregulation of taxi services.

“Such deregulation could be thought, for instance, only to the app segment of “taxis upon request” (radio taxi, in Portuguese). Therefore, it would be possible to encourage business models that could foster the competition among apps and hence to benefit the consumers allowing them to choose among services that are more innovative, with improved quality and safety, and lower prices,” concludes the document.