The Transport Committee of the London Assembly has published a report on future transport technologies in London, covering Connected and Autonomous Vehicles, App-based services (Uber and dockless bikes) and drones. This is a useful review of the prospects for these technologies, which draws attention to aspects of governance and regulation where the existing framework is inadequate for innovative technologies.
I was recently involved, as a member of an expert Panel, in a study, Older Canadians on the Move, carried out by the Council of Canadian Academies. This had been commissioned by the Federal Government and focused on measures that might be taken to improve the mobility of older citizens primarily for longer distance travel, local travel being the responsibility of lower tiers of government. Nevertheless, we did recognise that longer trips started locally and so were concerned with door-through-door journeys.
The Panel identified three pathways to help facilitate door-through-door journeys for older adults and improve the inclusivity of the Canadian transportation system: advancing human and social resources; advancing technology and infrastructure; and advancing policy. Each pathway has an important research and development and innovation component, whether it be through the development of new technologies or the testing and implementation of research-driven solutions in real-world settings.
I have also contributed a chapter to a book edited by Charles Musselwhite on Transport, Travel and Later Life, on the topic Future Transport Technologies for an Ageing Society: Practice and Policy. Let me know if you would like to see this.
In recent years there has been emerging evidence that the travel behaviour of young people has been changing, characterised by a shift away from car use. The UK Department for Transport commissioned a thorough study from researchers at the Universities of West of England and Oxford, comprising a literature review and secondary analysis of existing UK data sets.
For some years Michael Sivak, of the University of Michigan, has been monitoring vehicle ownership and distance driven in the US. His latest report shows that light duty vehicle ownership per person and per household both peaked in 2006, and that distance driven per person and per household reached their maxima in 2004. (Light duty vehicles are cars plus trucks with two axles and four tires.)
There has been some revival of distance driven per capita in recent years, but I would not expect any long term growth above the present plateau, given both time constraints on personal travel and speed constraints on the road network.
The National Infrastructure Commission has been consulting on a number of questions, including how the Government could best replace fuel duty in a way that is fair.
The prospect of a complete switch to electric propulsion for cars and vans will lead to loss of most revenue from fuel duty, currently about £28 billion a year (HGVs might still require taxable fuel), offset to a small degree by VAT of 5 per cent on electricity. Vehicle Excise Duty raises some £6 billion a year, rather less than the annual capital and current expenditure on national and local roads of £8 billion in total. So VED could be raised to cover the full cost of the road system. But that would leave a major gap in public revenues and would, in the long run, imply much cheaper motoring – welcome to motorists but problematic in respect of the detrimental impacts of the car.
To fill the revenue gap it would be logical to levy a charge on the use of electric vehicles (EVs). This would be a charge related to distance, weight of vehicle (which determines damage to carriageway), location and (possibly) time of day (reflecting congestion which imposes costs on other road users). It would also be possible to relate charges to the cost of the vehicle when new, so that the better off road users paid more than those who could only afford a reasonably priced family car.
The public rationale for such a charge would be that it is right that EVs should contribute their fair share of the revenues raised from road users, both to cover the costs of operating, maintaining and developing the road network, and to meet the wider needs of society.
EVs could only be charged for road use once their costs permitted this. At present, the lower cost of electricity goes part way to offsetting the higher capital cost of EVs. However, capital costs are expected to fall as battery technology advances, so that over time cost headroom will develop that will allow EVs to be charged for road use while maintaining their economic attractiveness in relation to conventional vehicles.
Road user charging would allow devolution of revenue raising to fund the road system. One tranche of revenue would be taken by the Treasury to support general government expenditure. The remainder would be retained by road authorities to fund their expenditure on roads and other transport provision. The Department for Transport would decide charges for the Strategic Road Network, while local authorities with responsibility for roads would set charges for their networks. There would need to be some coordination of approach to minimise diversion of traffic onto unsuitable roads, perhaps a responsibility for the Office of Rail and Road.
Road authorities would set charges according to their revenue and investment needs: problems with potholes would justify raising charges, as would plans for additional capacity. The income stream from charges could be used to raise finance for capital projects. Devolution of revenue raising to road authorities would largely obviate the need for grants from central government, other than perhaps for regional ‘rebalancing’. If, like London, local authorities chose to manage demand by means of a congestion charge, the revenue could be used to fund public transport. This would provide an important tool to influence the pattern of urban transport.
The London congestion charge is well accepted by the public, is technically reliable and raises useful revenue. It is, however, based on a daily charge for entering the charging zone within the charging hours, regardless of level of traffic or distance travelled. The Mayor’s draft Transport Strategy indicates that consideration will be given to the next generation of road user charging systems, to help achieve policies for mode share, road danger reduction, environmental objectives, congestion reduction and efficient traffic movement. It would be sensible for consideration of technology options to be a joint effort between TfL and DfT, so that London could act as a test-bed for arrangements that are capable for national use in due course.
The technology for road user charging would comprise a digital platform with a vehicle-based device displaying an app. Other facilities could be offered on the device including route guidance to avoid congestion, journey time information, indication of available parking, facilities for sharing trips with those travelling in the same direction, and information about non-car modes of travel where these are practicable alternatives. The menu of options would trade off speed, quality and cost. This technology would allow the operation of the road network to be optimised, reliability to road users to be improved, and the costs of maintenance, operation and development to be recovered through charges that reflect costs.
The National Infrastructure Commission has been consulting on the intended National Infrastructure Assessment. One question concerns what changes to the design and use of the road would be needed to maximise the opportunities from connected and autonomous vehicles on both urban and inter-urban roads; and how could these changes be brought about.
Autonomous vehicles (AVs) are being developed by established car manufacturers and new technology companies. It seems unlikely that there will be much impact on road use until they become fully driverless, when there will be two main consequences.
First, for shared use vehicles such as taxis, the cost of the driver will be eliminated. This will open opportunities for services in the current gap between high capacity, low fare public transport and low capacity, high fare taxis. A variety of door-to-door mobility services using cars or minibuses will draw people from conventional public transport but also lessen the attractions of individual car ownership in urban areas.
Second, individually owned AVs will be capable of travelling unoccupied, for instance returning to base after dropping a passenger, or ‘parking on the move’ by circling the block while the owner is doing business. Such unoccupied trips would add to traffic and may need to be regulated in areas prone to congestion, to give priority to occupied vehicles.
As regards the impact of AVs on the capacity of the road network, the above consequences would be expected to increase demand and thus congestion. The question then is the scope for increasing capacity through connected autonomous vehicles (CAVs) operating with shorter headways, with or without drivers available for some tasks.
Trials are planned of platoons of freight vehicles, the main benefit being fuel saving from reduced air resistance. There will be drivers for each vehicle who will be trained and required to operate with a very short headway. However, the generality of drivers of AVs will be able to choose the gap to the vehicle in front. It is not clear why, without an incentive, they would choose a gap smaller than that with which they are comfortable, which may not be much different from current headways.
Accordingly, to increase road capacity by reducing headway there would need to be some incentive that would impact on individual drivers. This might be a road user charging regime that charged on the basis of the length of carriageway effectively occupied. However, drivers willing to ‘tailgate’ would pay less than those of a more cautious disposition, which would raise a question of public acceptability.
Another kind of incentive to reduce headway would be dedicated lanes that are less congested and faster flowing than other lanes, analogous to High Occupancy Vehicle lanes on US freeways. Short headways would need to be enforced. A faster lane for CAVs would need to be the outer lane, requiring vehicles to manoeuvre prior to leaving at a junction.
There would need to be acceptable incentives for drivers to reduce headways if manufacturers are to go beyond equipping vehicles with the existing adaptive cruise control. Manufacturers will be responsible for the safe functioning of AVs. Adding vehicle-to-vehicle or vehicle-to-infrastructure connectivity to reduce headway would exacerbate this responsibility by introducing functionality that depends on that of other manufacturers and suppliers and that increases the risk of security breaches.
More generally, connected vehicles operating at short headways would require reconsideration of the safety regime, which at present is concerned with the performance of individual vehicles, having regard to the nature of typical crashes. A system of connected vehicles would require consideration of fault modes at system level, for instance the consequences of faults in individual vehicles in a platoon and of faults in connectivity. It would not be surprising if there were trade-offs between headway and safety that limited the possible increase in capacity.
The Strategic Road Network (SRN) of motorways and major interurban roads is a mature system, with investment aimed mainly at increasing capacity by utilising hard shoulders as running lanes, plus junction modifications. Few wholly new routes of any length are planned. Mixed traffic will be the norm for many years to come. Distances between junctions are relatively short, compared with other countries. Space is scarce for forming up platoons of freight vehicles. So the SRN is not obviously well suited to pioneering short headway CAV operation, despite the Government’s enthusiasm.
Likewise, Britain’s urban roads substantially reflect historic street patterns, unlike more recent US gridiron layouts (of which Milton Keynes is a rare UK example). Narrow inner suburban streets with on-street parking are likely to prove awkward for driverless taxis, which would inhibit their general use.
Road traffic congestion arises mainly in or near areas of high population density and high car ownership, such that many potential car trips are deterred by the prospect of unacceptable time delays. Were capacity to be increased by connected vehicles operating with shorter headways, more car commuting would result, with more vehicles entering cities – not a desirable outcome given that car use is declining in successful cities. Increasing road capacity through vehicles operating at shorter headways is not fundamentally different from increasing capacity by adding carriageway. Through neither approach can we build or manage our way out of congestion.
Altogether, it does not seem a high priority for Britain to attempt to be an early adopter of connected vehicle technology. We should evaluate developments elsewhere, aiming to be a fast follower if there were to emerge benefits that could be gained under our conditions. On the other hand, there are good reasons to press forward with electric propulsion and digital technologies, including road user charging, where UK geography and institutions provide a favourable context.
The National Infrastructure Commission has now announced a competition with up to £200,000 available for ideas to change road design, management and use, to maximise the benefits of connected and autonomous vehicles. I will be interested to see if any proposals that result lead me to revise my somewhat pessimistic judgement.
Uber’s buccaneering entry into regulated taxi markets in many cities prompts questions about the purpose of regulation and who benefits. While there is little academic literature on the topic, a 2016 paper* by Harding, Kandlikar and Gulati, focused on North American taxi markets, is illuminating. It is argued that the case for regulation is based on the view that the taxi market suffers from three problems: ‘credence good’, open access and thin market:
- A credence good is a good or service whose quality cannot be determined by the consumer until after it has been consumed. Questions about reliability of a taxi service may deter users who may be concerned about excess charges or a poor quality vehicle. Regulation that sets standards for quality and price overcomes such market failure.
- Open access to the market may attract large numbers of new entrants on account of low costs of entry. Given limited demand in the locality, earnings of drivers would fall, increasing the incentive to illegitimate charging and poor vehicle maintenance.
- A thin market has a small number of buyers and sellers, which reduces the chances of matching supply and demand. The taxi market is thin in that it is geographically dispersed. Regulation of fares prevents exploitation of users when demand exceeds supply.
The entry of Uber and similar ride hailing platforms impacts the taxi market in a number of ways:
- Barriers to entry for drivers are lowered, and users are attracted, shifting a thin market to a thick one.
- Fares flex according to demand but are specified before the trip is undertaken. Surge pricing attracts drivers to meet peaks of demand.
- Quality rating of both drivers and passengers, plus predictable fares, helps ensure consistent standards of service.
Thus the platforms address the shortcomings of traditional taxi markets that have justified regulation, effectively removing two of the rationales for taxi regulation, and largely mitigating the third (open access), Nevertheless, the implications of competition between platforms are as yet unclear. Competition could lead to instability on both supply and demand sides, which could result in collusion by platforms, to the disadvantage of drivers and passengers; while lack of competition may result in monopolistic pricing.
The paper concludes that regulators should allow the ride hailing market to grow and focus on the possibilities of future monopoly and of collusion between platforms.
*Taxi apps, regulation, and the market for taxi journeys. Transportation Research Part A: Policy and Practice, 88, 15-25, 2016.
I blogged recently about the economics of Uber and other ride hailing services. Further light has been shed by the excellent new book from Andrew McAfee and Erik Brynjolfsson of the Massachusetts Institute of Technology: Machine, Platform, Crowd. From this I gleaned the thoughts below.
Network effects have long been recognised: some services become more valuable to each user as more people use them. The telephone is the historic example, WhatsApp a recent instance. Network effects reflect demand-side economies of scale, where benefits to users, the source of demand, grow as the scale increases (contrasted with supply-side economies of scale where costs fall as scale increases).
Two-sided digital platforms serve to match supply with demand. The most successful take advantage of network effects to become powerful aggregators of both supply and demand. They are early to the business space and pay a great deal of attention to user interfaces and experience, since users may be unwilling to employ more than one or two competing platforms.
In the transport sector, we are concerned with platforms that function ‘online to offline’ – digital access to physical mobility. Examples: Uber, Lyft, Gett and other taxi services, BlaBlaCar and Liftshare for ride sharing, car clubs, dockless bike hire by app, online rail ticketing. As well as matching users with services, the platforms optimise operations, for instance selecting the fastest routes and predicting the location of future demand. The negligible cost of digital scaling means that these platforms can handle huge volumes of information – about user preferences, availability and price of services, payments etc.
In the past such data handling would have been limited to large organisations. Now, the availability of cloud computing with unlimited amounts of capacity helps innovators enter the market, scale rapidly and compete aggressively.
Demand side economies of scale can grow much faster than costs. However, the main challenge for digital platforms arises because the supply side involves physical plant and infrastructure whose capacity is finite, hence capacity, a perishable commodity, must be carefully managed. An important tool is revenue management, pioneered by the budget airlines, where varying price is used to match supply with demand – which needs lots of data and lots of supply and demand to run well.
As well as benefiting from network effects, digital platforms can reduce information asymmetries that inhibit transactions, such as whether you can trust your taxi driver, particularly in an unfamiliar city. Uber asks both customers and drivers to rate each other after each transaction, which allows poor performers to be dropped and increases confidence in quality of service.
Operators of two-sided platforms typically prefer lower prices than their providers of service. The maximum revenue of a taxi service arises at low fares, given the price elasticity of demand. However, two-sided platforms have to satisfy both providers and users. Lower fares increase demand, which will attract more providers onto the system, a benefit to providers. But lower fares also mean less income to drivers.
There is a belief that two-sided platforms for taxis offer network demand side economies of scale such that the biggest platform will dominate each local market. Patient capital to support growth of the market will reduce the marginal costs of arranging a ride, to yield attractive returns to investors.
Analysis of the economics of transport digital platforms is at an early stage. A key question is whether scale economies would tend to result in monopoly, or whether competition would arise on account of low barriers to entry and a gig workforce open to recruitment by the offer of better terms.
An interesting article by Len Sherman in Forbes magazine argues that unregulated taxi services are characterised by bounded demand, abundant supply given low barriers to entry, relatively undifferentiated service quality, low customer switching costs, high variable costs and virtually no economies of scale. Historically, this led to regulation, for example the set fares and ‘Knowledge’ requirement for drivers of London’s black cabs, which allowed profitable operation and acceptable remuneration, at the expense of consumers who paid higher fares.
Uber’s buccaneering approach bypassed taxi regulation, and allowed rapid market penetration of a service that is superior in many respects to existing taxi and private hire services and hence very popular. The question is whether Uber can be profitable, which Sherman doubts.
The economics of ride hailing, or demand-responsive transport (amongst the variety of terms in use), is not straightforward. These businesses compete for both customers and drivers. Low fares attract customers but deter drivers who have other choices for getting clients. Reducing the commission taken (20-25% for Uber) could benefit drivers and customers but would reduce profitability and disappoint investors. Raising fares could benefit both drivers and profitability but would encourage competitors to enter the market.
Much depends on whether the market for ride hailing tends to monopoly, so that the dominant incumbent is able to deter new entrants by short-term fare reductions; or whether sufficient competition would naturally arise because barriers to entry are not high (digital platforms being replicable). Lyft, Uber’s main US competitor has been gaining market share, which suggests a competitive market may be possible.
For governments, there are a number of challenging questions about the future regulation of taxis and private hire vehicles:
- Create barriers to entry that result in effective monopoly supply, with improved driver remuneration but higher fares (the situation with regulated fares)?
- Or aim for a level playing field for competing suppliers, to encourage innovation and benefit consumers?
- Segment the market with distinct classes of providers, or allow new entrants with novel offerings, such as demand-responsive minibuses?
- Protect remuneration of drivers in a competitive market by application of the ‘minimum wage’ concept?
- Regulate overall numbers of ride hailing vehicles to mitigate congestion and to limit diversion of passengers from buses, or regard such services as helpful in reducing individual car ownership?
One approach to the problems experienced by Uber drivers in London is being developed by the New Economics Foundation – a driver-owned alternative that is just as convenient and competitive on price, but treats its passengers and drivers with respect. However, the question is whether the economics of ride hailing allow better rewards for drivers, over and above ‘respect’, particularly since a driver-owned cooperative would be constrained by limited capital in the face of competition from well-capitalised commercial enterprises able to sustain short-term losses while seeking market dominance.
Perhaps a better approach to improve the position of drivers would be to devise an app that allowed them to achieve improved outcomes while continuing to work for Uber and other ride hailing businesses. The key point is that transport services are very time sensitive and therefore vulnerable to interruption. It is noteworthy that Ryanair, which had long declined to recognise the pilot unions, has recently agreed to do so when faced with a strike in the run up to Christmas.
Organising collective action by drivers by means of an app might be one approach to securing better terms. But it might also be possible to take advantage of Uber’s surge pricing system in which prices rise when demand exceeds supply, thus deterring some customers and attracting additional drivers. An app that allowed drivers collectively to constrain additional supply could prolong the duration of surge pricing to their benefit.
The operation of such driver-organising apps in an already complex industry would need careful analysis, based on game theory concepts. It is possible that the outcomes for drivers would be better than head-on competition by a driver cooperative.
A kind of precedent is the Vegas Kickback app, which rewards drivers, over and above the fares earned, who take customers to commission-paying destinations in Las Vegas – nightclubs, massage parlors, gun ranges etc.
Charles Musselwhite has edited a new book on transport and travel in later life. I have a chapter on Future Transport Technologies for an Ageing Society. I discuss how the new digital technologies are affecting both the transport system based on civil and mechanical engineering technologies, and how we choose to travel. There are a number of ways in which innovations would be of benefit to those in later life, and a number of policy approaches that would help achieve such benefits.