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Uber has defeated Bill de Blasio’s plan to rein them in

Spencer Platt/Getty Images

On Wednesday, Bill de Blasio signed a truce with Uber. The New York City Council had been on the verge of voting on a controversial proposal to cap the number of vehicles Uber and other paid car services could have on the road. But Uber organized a massive public protest that forced the mayor to scrap the proposal.

In an overwhelmingly liberal city, both sides have argued that they represent the progressive side of the debate. De Blasio not only blamed Uber for growing congestion, but also faulted the company for its poor treatment of drivers and its cavalier attitude toward following the law.

For its part, Uber argued that capping the growth of car services will harm minorities and people in the outer boroughs, who are sometimes poorly served by conventional taxicabs. It also accused de Blasio of carrying water for taxicab companies.

What does the deal between New York City and Uber say?

According to the New York Times, "The city will conduct a four-month study on the effect of Uber and other for-hire vehicle operators on the city’s traffic and environment."

While the study is being conducted, de Blasio won't seek to cap the number of new vehicles Uber or other car services can put on the road. But de Blasio administration officials say a cap is still a possibility in the future.

Why did de Blasio back down?

Uber mounted a broad publicity campaign against the mayor's proposal, enlisting the support of celebrities such as Kate Upton, Ashton Kutcher, and Neil Patrick Harris:

Another key Uber ally was New York Gov. Andrew Cuomo, who weighed in on the debate on Wednesday. "I don’t think government should be in the business of trying to restrict job growth," he said in a radio interview.

Is Uber really responsible for congestion in New York City?

It's hard to say, but the four-month study contemplated in the new deal might give us a better idea.

Uber has about 26,000 drivers in New York City — about double the number of conventional taxicabs. On the other hand, there are a lot of other cars on the street in New York, too. Uber says that a total of 2.7 million people enter New York in their own cars each day; that includes about 750,000 vehicles entering Manhattan below 60th street every workday.

Of course, an Uber car is going to be on the road longer than a regular private car, so Uber may be contributing more to congestion problems than you'd think from the raw numbers. On the other hand, some Uber trips are replacing ones that people would have taken in their own cars, saving parking spaces and congestion from people circling the block looking for parking.

And this could be especially true in the long run. By making it easier for people to get around without a car, services like Uber may encourage more people to give up owning their own vehicles.

How would a cap have affected Uber service?

Uber had depicted it as a disaster for its customers. It had added a "de Blasio" tab on its app purporting to show the long wait times that would occur if the mayor's proposal for a cap was adopted.

The company says it's attracting 25,000 new customers a week and has to hire hundreds of drivers per week to keep up with the demand. If it can't do that, there could be driver shortages and long waits to get an Uber.

Presumably, Uber would deal with this problem by raising prices — either increasing prices across the board or invoking surge pricing more often to deal with demand spikes.

Why does Uber say the cap would harm minorities?

African Americans have long complained that taxicabs don't serve them well. Cabbies would sometimes refuse to stop to pick up black people, and taxicabs would spend disproportionate time in Manhattan — where fares are easiest to find — rather than in outlying areas where many minorities live.

Uber says its smartphone-based hailing technology has helped with this. Its software tracks how drivers respond to hails and penalizes those who decline them too often, discouraging them from discriminating among passengers. And the technology also makes it easier for drivers and passengers to find each other in the relatively sparsely populated outer boroughs.

Uber says this responsiveness has been made possible by rapid growth in the number of drivers. By flooding the market, the company is able to ensure that even people in the outlying areas of the city are able to get a car in a reasonable amount of time. But Uber's drivers are free agents; Uber can't order them to the outer boroughs. So if demand outstrips supply, drivers are likely to focus on the busiest areas of Manhattan, where wait times are shortest.

And Uber has had some success rallying black leaders to its side. For example, two black elected officials from outlying areas of New York denounced de Blasio's proposal at an Uber-organized rally yesterday.

What was the mayor's case against Uber?

New York Mayor Bill de Blasio. (Spencer Platt/Getty Images)

While de Blasio's case for the cap has focused on congestion concerns, the mayor has also made the case that Uber is a bad corporate citizen that has grown wealthy by exploiting its drivers.

Uber classifies its drivers as independent contractors rather than employees. That means they don't get health insurance or disability benefits, nor does Uber reimburse them for work expenses as a company would for an employee. Uber's critics have charged that this is unfair and illegal. Last month, one California regulator agreed with the critics, ruling that Uber drivers were employees under California law, which entitled them to more benefits.

Why is the taxi industry interested in this issue?

Every business benefits from limiting its competition; conventional taxi companies have long lobbied to limit the expansion of ride-hailing companies like Uber and Lyft.

But taxi companies also have a more direct financial interest in limiting the expansion of those competing services. To operate a cab in New York requires a taxi medallion, and the number of medallions has grown much more slowly than demand. As a result, operating a taxi became extremely lucrative, and the value of these medallions has skyrocketed to as much as $1.3 million each.

But since Uber entered the market, taxis have faced more competition, and so the value of taxi medallions has been falling. That's another reason taxi companies — which have given to Mayor de Blasio's campaign — would benefit from limits on the number of ride-hailing cars on the road.

Watch: The economics of being a driver for hire