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Honolulu Mayor Kirk Caldwell vetoed a bill Tuesday that aims to limit how much Uber, Lyft and other ride-hailing companies can charge customers when demand surges.

“Surge pricing” occurs when ride-hailing companies charge customers more during rush hour, bad weather or other events that cause the number of potential riders to spike. Uber and Lyft executives argue this method incentivizes more drivers to get on the road so supply meets demand.

“I believe our market economy actually works really well when you have scarce resources,” Caldwell said at a press conference Tuesday. “If the price goes up, more service is provided and so surge pricing is part of that. And if there was no other choice, then I would be more concerned, but there are choices. You can pick the model you want to use, it may not be as convenient, but you know all of us sometimes are willing to pay less for less convenience or pay more for more convenience.”

Caldwell also announced he plans to introduce a new bill by the end of the week that would loosen regulations on taxi companies and allow them to practice surge pricing if they tell riders in advance what the cost of the trip will be.

Some Hawaii taxi cabs already have apps, said Sheri Kajiwara, director of the city’s Department of Customer Services, but existing laws restrict the amount cabs can charge per-mile. The new legislation would no longer subject cabs to maximum per-mile rates if the cab has an app or other system to disclose prices before the rider agrees to the trip.

“We’ve basically deregulated taxicabs,” Caldwell said of his forthcoming bill. The legislation would replace Honolulu’s and allow surge pricing to continue.

Caldwell’s proposed legislation would require both taxis and ride-hailing companies to disclose how much a ride will cost before the customer enters the car regardless of how long the ride takes. In the case of a driver using a traditional taximeter system, the city’s customer services director will continue to set the maximum rate per mile.

Allowing surge pricing spells doom for taxi companies, EcoCab owner David Jung said in an interview after the press conference. 

“I don’t think there is any business that can live off the crumbs of another business,” he said.  

Jung likened surge pricing to an auction, whereby rides are available only to the highest bidders. Capping surge pricing protects customers who cannot afford the spiked costs for a ride, he said.

The City Council had voted 6-3 to pass earlier this month. The council would need at least a 6-3 majority to override the mayor’s veto and has 30 days to reconsider the bill.

Council members Ikaika Anderson, Trevor Ozawa, Ann Kobayashi, Kymberly Pine, Ernie Martin and Carol Fukunaga voted for it. But Anderson and Ozawa said they were voting “yes” with reservations.

Council members Brandon Elefante, Ron Menor and Joey Manahan voted against it.

Support for the bill came from taxi companies, who are already subject to price caps.

Both Uber and Lyft show customers the price of their ride before the customers agree to book it, a practice called “upfront pricing.” The price may change if a customer keeps a driver waiting before entering the car or if the destination changes after the customer accepts the price.

If the council overrides Caldwell’s veto, Honolulu will become the first city in the United States that requires companies to cap surge prices, they have claimed. Tabatha Chow, Uber’s senior operations manager, said the company would reconsider doing business on the island if the regulation is enforced.

“Mayor Caldwell’s veto protects consumer choice and earning opportunities on Oahu,” Chow said in a statement Tuesday. “We look forward to continuing to serve our community.”

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