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Friday, April 30, 2010

Taxi deregulation favorable or unfavorable historically?

You asked for general information on taxicab deregulation, and whether
the experiences with deregulation have been favorable or unfavorable.


According to several published studies, the effects of deregulating
the taxi industry in United States have varied significantly,
depending on local markets and conditions, but have generally been
unfavorable. Regulations governing the taxicab industry vary by state
but typically cover entry, fares, and service. Usually, (1) industry
entry is restricted based on certain considerations such as need or
the ratio of taxicabs to population, (2) rates are prescribed, (3)
companies must meet certain service standards such as 24-hour
availability, or (4) taxis must meet health and safety standards.
These regulations typically make entry into the taxicab industry

But, several studies, including a 1993 Price Waterhouse study, found
that overall, in many cities that deregulated, the supply of taxicabs
increased, fares increased, service quality declined and there were
more trip refusals, lower vehicle quality, and aggressive solicitation
of customers resulting from a higher supply of taxicabs. There were
only minor improvements in availability. As a result, many cities have
since re-regulated. This report describes deregulation experience in
Indianapolis, Seattle, and St. Louis.


Taxicab regulations are not uniform across the country, but typically
address similar issues as market entry, routes, service schedules and
continuity, fares, and service and safety standards. The regulations
are usually aimed at preventing an oversupply of taxis and providing
convenient, affordable, and safe service. Several cities restrict
market entry by limiting the number of available licenses, placing a
moratorium on new applications, or establishing a difficult
application process. For example, in some cities, if someone wants to
start a new taxi company, the regulating entity must first hold a
public hearing and the applicant must prove the demand for more
taxicabs. A 1993 Price Waterhouse survey of 25 cities showed that 10
placed limits on the number of taxis (cited in Sam Staley, How Cities
Put the Brakes on Taxicabs, 1998).

In order to ensure safe service and service quality, many cities have
regulations that address such areas as driver insurance and licenses.
Usually, drivers must have adequate insurance, hold a valid drivers'
license, have no criminal record, and have frequent vehicle
inspections. With regard to service quality, regulations address such
areas as proper driver conduct, vehicle appearance, cleanliness, hours
of service, or service locations. Some cities set requirements for the
minimum number of taxis per firm; requirements for service 24 hours
per day, seven days per week; requirements for separate dispatch
offices for each firm; and limits on the maximum age of taxis.


Those who argue in favor of deregulating taxi and livery services
generally have made two arguments. These are (1) that deregulating
these industries would allow more providers to enter the market and
(2) that vigorous competition among providers would improve service
and lower its cost to the consumer.

With respect to market entry, deregulation proponents point to
restrictive regulatory practices that allow those with operating
authority to make the process of new providers entering the market
excessively time consuming and expensive. Generally, operating
entities are given the opportunity to challenge a new provider's
application for operating authority as unnecessary and unsupported by
the market. Deregulation proponents argue that this deters many small
but capable and enthusiastic competitors. Deregulating or partially
deregulating the market entry process would allow small and large
companies to compete for business or establish niches in the market
that they might serve most effectively.

The second deregulation argument essentially flows from the first. It
is that these industries, and in particular the taxi industry, suffer
from a lack of price and service competition that exists in other
business climates and that this condition is encouraged by regulation.
Deregulation proponents argue that deregulating these businesses would
promote a more openly competitive environment and that this inevitably
results in price as well as service competition. Both, they argue,
provide consumers with the opportunity to choose between services that
fit their needs or pocketbooks rather than them being dependent on a
service provider with a monopoly on their business.


The actual results differ in each city. Overall, several studies have
found that taxicab supply increased dramatically, particularly at
airports already over-served by existing taxicab companies. Price and
service competition was eliminated by first-in, first-out taxicab
stands. Response times either remained unchanged or decreased, fares
increased in every city, and short-haul trip refusals increased
(Cascade Policy Institute, An Economic Analysis of Taxicab Regulation
in Portland, Oregon, 1998). Price competition usually does not occur
with deregulation since consumers do not "comparison shop" when
searching for a taxicab. Instead, taxi fares usually increased with
deregulation because the higher supply of taxis caused drivers'
earning potential to decrease.

Other common results of deregulation include more highway congestion,
higher energy consumption and environmental pollution, less driver
income, and little or no improvement in administrative costs (Paul
Stephen Dempsey, The Revolving Door: Taxi Industry Regulation,
Deregulation & Reregulation: The Paradox of Market Failure, 1996).


Indianapolis deregulated by eliminating the cap of 393 taxicab
licenses, eliminating the 24-hour dispatch requirement, allowing
companies to operate part-time, and replacing a set fare with a
maximum fare. In the first six months of deregulation, 32 companies
started up, of which three quarters were owned by minorities or women.
Also, pick-up rates were 12% lower for new companies compared to
existing companies, average mileage rates were 3% lower, and the
average rate for the first mile was 7% lower (The Buckeye Institute
for Public Policy Solutions, Taxicab Regulation in Ohio's Largest
Cities, 1996).


Seattle deregulated in 1980 by eliminating (1) the provision that
based the number of taxicab licenses on the population and (2) fare
controls. Deregulation resulted in a high supply of taxicabs, variable
rates, price gouging, short-haul refusals, poor treatment of
passengers, and fights at taxicab stands at airports. As a result,
Seattle re-regulated in 1984, reinstating a restriction on taxicab
licenses and fare controls (The University of Leeds Institute for
Transport Studies, Taxi Deregulation: International Comparison, 1998).
Another study found that the oversupply of taxicabs resulting from
Seattle's deregulation reduced individual drivers' earning potential,
increased fares, and lowered the quality of service (Nelson/Nygaard
Consulting Associates, Making Taxi Service Work in San Francisco).

St. Louis

Deregulation produced a 35% rise in taxi fares, and taxicab drivers
complained of waiting hours at airports for customers at taxicab
stands. Taxicab companies claimed they increased fares in order to
make up for lost competition resulting from the increased supply of
taxis. Tourists and airport officials reported a decrease in service
quality because of deregulation. As a result, the St. Louis City
Council froze new taxicab licenses in 2002 (International Association
of Transportation Regulators, The Regulator Vol. 9, Issue 4, 2002).


One study suggests that the goals of deregulation can be achieved with
partial deregulation, through reducing the requirements for market
entry and deregulating prices. The study proposes that entry should
still be regulated, but requirements for entry should be limited to
having a valid drivers license, vehicle insurance and registration,
and a safety certification. Deregulated prices and fewer
standardization requirements would purportedly encourage more
innovation and lead to an overall improvement in service quality, as
drivers and companies would attempt to engage in price competition by
making their taxis more distinct and appealing to consumers (Cascade
Policy Institute, An Economic Analysis of Taxicab Regulation in
Portland, Oregon, 1998).

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