Over the past 25 years, much has been written about the role of disruptive innovations in the contemporary economy. Indeed, a great deal of attention has been paid to how nascent technological platforms, like Google, Amazon, Uber and Airbnb, have been disrupting existing industries.
Most of this research has focused on the market strategies that contribute to the success of disruptive firms. However, scholars have increasingly begun to highlight the important role that non-market and corporate political strategies play in producing market disruption. Indeed, a growing body of research suggests that, to disrupt markets, start-ups must often pursue strategies to change existing laws and regulations, which scholars have referred to as regulatory entrepreneurship.
While informative, the research on regulatory entrepreneurship has mostly centered the corporate political strategies and tactics of the disruptive firms that seek to influence their political environments, leaving the work of regulators and lawmakers to manage that disruption relatively under-explored.
Collective work of regulators and lawmakers for market disruptions
By contrast, in a recent article in Socio-Economic Review, I argue that to fully understand how start-ups can disrupt markets, it is necessary to observe the collective work of regulators and lawmakers, who have an active role in making policy changes. I contend that, by empirically centering the work of regulators and lawmakers, and analyzing the strategies that they use to enable or constrain disruptive innovations, we can more clearly illuminate the mechanisms and processes that produce market disruptions.
This article asked: how do regulators and lawmakers work together, or against each other, to respond to regulatory entrepreneurship and disruptive innovations? To answer this question, I analyzed how regulators and lawmakers responded to Uber’s market and non-market strategies in New York City, Chicago, and San Francisco between July 2010 and September 2014.
Drawing on 142 interviews, ethnographic observations, and content analysis of primary source documents, I showed that, across contexts, regulators initially responded to Uber’s unapproved market entry by enacting blocking strategies, whereby they took measures to stop Uber from entering and disrupting the industry.
However, I further demonstrated that, following Uber’s corporate political strategy of becoming ‘too big to ban,’ regulators and lawmakers shifted to what I refer to as incorporating strategies, whereby they added or modified existing regulations to align with Uber’s practices.
Different regulatory strategies for disruptive innovations
Importantly, I identified three different incorporating strategies that regulators and lawmakers used to produce regulatory change across these three cities: (a) horizontal venue shifting; (b) vertical venue shifting; and (c) reinterpreting existing regulations.
First, I showed that in San Francisco, city lawmakers and state regulators worked together to horizontally shift venues. That is, at the request of city lawmakers, state regulators at the California Public Utilities Commission utilized the ambiguity of Uber’s disruptive innovation to claim regulatory authority over the emerging industry away from the hostile city regulators at the San Francisco Municipal Transportation Authority and create new regulations specifically for Uber and other ride-sharing platforms.
Second, I demonstrated that in Chicago, city lawmakers worked against hostile taxi regulators to vertically shift venues. In this context, lawmakers superseded the regulatory jurisdiction of The Department of Business Affairs and Consumer Protection, and created new laws specifically for Uber, which the taxi regulator would then implement.
Finally, I illustrated that in New York City, sympathetic regulators at the Taxi and Limousine Commission utilized their regulatory discretion — or, rather, the flexibility to interpret and implement public policies created by elected officials — to transform the effects of their existing ‘black car’ regulations without changing their codified form. Counterintuitively, because the existing regulations pertaining to black cars were far stricter on Uber’s operations than the new regulations created by regulators and lawmakers, ride-sharing platforms are more heavily regulated in NYC than in either San Francisco or Chicago.
Importance of non-market environment in entrepreneurial successes
Beyond its substantive conclusions regarding Uber’s market disruption, this article contributes to the literatures on disruptive innovations, regulatory entrepreneurship, and corporate political activity. It contributes to the literature on disruptive innovations by documenting the importance of the non-market environment in determining the market successes of start-ups. Indeed, beyond the market environment, the findings of this article suggest that, to disrupt markets, start-ups often must engage with regulators and lawmakers.
Moreover, this article contributes to the literature on regulatory entrepreneurship by showing the different strategies and tactics that how regulators and lawmakers have to respond to disruptive innovations. In doing so, it also emphasizes the important interactions that take place between regulators and lawmakers in the enabling disruptive innovations.
Finally, this article extends the work on corporate political activity by answering a growing call for more localized understanding of corporate political processes. Most of the empirical work on corporate political activity has focused on the national or state levels, yet numerous public policies—from transportation and housing to education, policing, and land use policy—are either implemented or enacted at local levels. By showing the variation in responses to Uber’s corporate political activity, the findings of this paper underscores how the configuration of local political marketplaces can influence firm outcomes.
Practically speaking, the findings of this article also help situate the disruption of taxi regulation in other cities throughout the USA. To be sure, regulators and lawmakers in New York, Chicago and San Francisco were not the only supply-side actors in the USA responding to Uber’s regulatory entrepreneurship. Regulators and policy makers in cities like Philadelphia, Boston, Seattle, and Austin were also confronted with Uber’s novel corporate political activities between 2011 and 2014.
Like the regulators in this study, taxi regulators in many cities initially pursued blocking strategies in response to Uber’s market entry. However, like the supply-side actors in this study, many cities ultimately shifted to incorporating strategies, whereby they added or modified existing regulations to align with Uber’s practices.
In this way, the findings of this article provide a framework for understanding the responses from supply-side actors in cities and states around the USA and show how they enabled this disruptive innovation.
Read more
Nicholas Occhiuto. “Enabling disruptive innovations: a comparative case study of Uber in New York City, Chicago and San Francisco” in Socio-Economic Review 2021.
Image: Stock Catalog via flickr (CC 3.0)
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