Economic Sense: Uber Faces a Tough Time in Spain

January 1, 2015 Updated: April 24, 2016

If taxi app Uber had waited a few more days, it could have said it operated above the law in 2014.

However, in its first defeat of 2014 it chose to suspend its services in all of Spain in “respect of the law.”

This is rather strange for a company, which has continued operating in many countries, especially in Europe after being slapped with injunctions to stop offering its UberPOP ride sharing service.

UberPOP, mostly offered in Europe so far, is different from the U.S. services because almost anyone driving around in their car can pick up passengers and make money from it—quite an ingenious concept.

If other countries adopt Spain’s approach, Uber will soon face some real problems in Europe with UberPOP.

The Spanish Difference

So why did Uber officially concede defeat in its blog and stop operating in Spain? No, the company did not change its policy to pay fines rather than obey court injunctions, in this case issued by the second mercantile court of Madrid on Dec. 9.

However, according to several Spanish media reports, the app mysteriously stopped working after Dec. 25, either because of mobile connection problems or the inability to pay with credit cards, the only mode of payment for Uber.

Although there is no statement from Spanish officials regarding these strange incidents surrounding the Uber app, the government must have pulled some strings and advised telecom as well as credit card companies to pull the plug on Uber. The last time this happened to a large Western entity was in 2010 when PayPal temporarily suspended donations to WikiLeaks.

If other countries adopt this approach, Uber will soon face some real problems in Europe with UberPOP. Uber said in its blog entry it hopes complying with the law will make working with lawmakers, to “develop modern regulations for new technology-enabled services,” easier.

The app mysteriously stopped working after Dec. 25.

Why Not POP?

Incumbent taxi companies usually file lawsuits against Uber because they are afraid they might lose business—for good reason. Taxi markets everywhere are heavily regulated and therefore more expensive than necessary.

The only argument taxi associations can claim is that their licensed drivers operate more safely, although there are numerous studies challenging that very claim. Also, there are ride sharing platforms in Europe online where private and noncommercial drivers offer seats in their cars for a small fee. This has never been a security concern, so why should UberPOP be any different? There is always a risk when you step into a car, whether it’s your own, a taxi, a relative’s, or that of a complete stranger.

Of course, UberPOP drivers are not complete strangers because Uber verifies their driver’s license and identity, although it will never match the testing and education of licensed cabbies.

In terms of economic efficiency, UberPOP wins hands down. It increases the usage of car seats and reduces the fixed and variable costs of operating a car per person per ride. It is a more resource efficient and greener model—and one that threatens entrenched interests.