This case allows the instructor to review the uniqueness of the taxi industry and the need to regulate the traditional taxi industry. The case provides evidence of what will happen if the industry is deregulated. Once the uniqueness of the industry is highlighted, the instructor can guide students to discuss whether Uber`s new business model is capable of overcoming the two main problems of the traditional taxi industry: adverse selection and tragedy of the commons. Hong Kong`s taxi industry is demanding a total government ban on Uber, which is very popular in the city despite being illegal for vehicles without a car rental license. Previously, Uber drivers had lost their appeals, and Uber`s presence had caused strong resentment among taxi drivers. Uber Taxi seems to comply with the law, as its vehicles naturally have a taxi license. Uber Flash may be considered legal for taxis for the same reason, but not for UberX vehicles, as the use of private vehicles for ride-hailing services is prohibited. Both services operate on a «rental as a whole» basis, allowing taxis and passengers to agree on the fare instead of using the meter. Pursuant to Article 38 of the Road Traffic Regulations (Public Transport Vehicles), the registered owner of a public transport vehicle, including a taxi, may rent the vehicle to any person at a rental price based on the duration of the rental of the vehicle, with or without additional charges in relation to the kilometres driven or other conditions that may be agreed with the hirer. The prerequisite for the rental is that the vehicle is driven only by a person who is in the service of the registered owner, or that such a person is made available to drive the vehicle. In Hong Kong, as elsewhere in the world, Uber operates in a gray area.

Thousands of riders regularly use the Uber service in the crowded city. Many drivers make money with Uber by providing quality service and unused vehicles. On the other hand, taxi drivers expressed strong opposition to Uber due to unfair competition and illegal activities and staged several protests that were widely reported. Officially, the Uber service is illegal in Hong Kong, as the government has explicitly clarified that Uber drivers violated the law by offering car rental services without a license or liability insurance. The public is often confused: Uber seems like such an enjoyable thing that benefits both passengers and drivers, especially since traditional taxis are of such poor quality and often unavailable during rush hour. Why should we not allow healthy competition through a promising new business model that seems to benefit everyone but competitors? Isn`t competition generally a good thing? So the question is whether the government should allow Uber to operate legally. Uber has been operating in Hong Kong for eight years with about 14,000 active drivers. Its ride-hailing services are not legal without a car rental license, and the company has long been under attack from the taxi industry. In contrast, Hong Kong`s taxi industry faces strong criticism of its service standards. In the decade and a half since 2004, complaints against taxi drivers have more than doubled, surpassing 11,000 for the first time in 2018, according to figures from the government`s Transportation Complaints Commission. That number stood at 10,318 in 2019 before dropping to around half last year as Covid-19 drastically reduced taxi use.

Most complaints involve rude drivers, charging too much, picking up passengers or taking detours. The acquisition was Uber`s latest move into the taxi market, as many taxis — lured by rewards and low commissions — have already joined its platforms. Last October, it launched Uber Taxi, which allows Uber users to call a standard taxi in Hong Kong. This came after the company unveiled Uber Flash in 2019, a platform that connects riders with the nearest UberX taxi or private vehicle. In recent years, however, there has been little coordinated police action against illegal ride-hailing, and Uber remains robust and operational. The legal boundaries seem clearly defined: while Uber drivers break the law, riders are not. The Hong Kong Taxi & PLB Association said on Wednesday it wanted all private vehicles without a valid car rental permit to carry passengers against payment or taxi license to be banned from the Uber app. It should be noted that Hong Kong`s Law Reform Commission issued a document in 2018 calling for regulation of ride-hailing services that protects the public and minimizes the impact on taxi owners. Referring to increased congestion, she proposed taxing these services and also highlighted competition concerns. The authors of the paper also acknowledged that ride-sharing platforms could evolve and introduce more innovations, leading to increased legal uncertainty.