Licensing the taxicab market, pros and cons

Résumé du document

The feature of the taxicab industry varies significantly from one country to another in terms of the market share, type of vehicle and its level of regulation. Its role and proportion in the whole transport system has relatively decreased as compared to the other modes of public transport such as bus and the railways. However, it still plays a predominant role in most countries. Taxis are essential services used by a certain group of people and more often than ever, are a complement to the smooth operation of public transport services either in the urban or inter-urban regions. Taxicab licensing is part of the regulations that have been applied to the taxi industry. Generally, regulations are created for achieving efficiency and ensuring equity. In this manner, the taxi regulation and its services will have an impact on the economic development of the country. To elucidate further on the taxi market and its role in economic stability of the country, the concept of ?Pareto Optimality or Efficiency' is examined. A perfectly operating market reaches a state of Pareto Efficiency when the market reaches an equilibrium state. In other words, it is a market comprising of an efficient allocation of goods and production factors. A market (in the present case, the taxicab market) does not always operate perfectly with the right price but may operate imperfectly and result in the fail of the market mechanism (i.e. market failure).

Extraits

[...] Some of these criteria can be very stringent and constitute a formidable barrier to enter the market. A typical example of this can be seen in London, where the high cost for obtaining a licence represents an effective barrier of entry to the market. Sometimes it is a real problem, because licences can reach huge prices. Here is the example of the city of New York's taxi industry before its deregulation. The most significant law is the Haas Act adopted in 1937, which provided for the automatic renewal of vehicle licences and allowed transfer of licences between owners, conditioned only on approval of the new owners' qualifications by city. [...]

[...] As the topic is more about licenses, we will focus on the entry regulation with different examples. In a second part the market structures in city taxicab businesses will be described: entry barriers, nature of the product, the extent to which the firms exercise control over prices. In a third part we will compare two cases, where the taxi market is deregulated and another where it is not . Actually, some arguments have arisen for and against the deregulation of the taxi industry. [...]

[...] Therefore, there is a risk that the authorities that set taxi fares may come under the control of taxi companies (theory of the regulatory capture). When the market is deregulated, the taxicabs should be price takers, and they would have no control over the price charged. In practice, as the demand is not elastic, it leads to some increase in the fares The effects of licensing: comparison with an unlicensed market for cabs We assume that in a licensed taxicab market, the market structure is similar to an oligopoly. [...]

[...] The drivers' working conditions deteriorated significantly in terms of wages and working hours in most countries. The reduction of productivity caused by the deregulation led to less revenue and lower profitability for the operators. Profitability did not increase even in the case of fare increase in some countries Conclusion By way of conclusion, we can say that the taxicab industry is a market that has always been regulated. By regulating, the authorities attempt to correct the market failure. Regulation allows a better allocative efficiency, a control on quality and fares. [...]

[...] The prices are fixed by the local authorities or by some organizations, such as the Taxi and Limousine Commission (TLC) in New York. Almost everywhere in Britain, taxi fares are controlled. Controls are imposed by setting a maximum fare that may be charged, though charging less than the prescribed level is very uncommon in practice. In London, the government reviews the fare annually, using a formula based on a range of cab-specific costs and an index of earnings. Elsewhere in England, local authorities fix the level of fares. [...]