Large fare savings possible from taxi industry deregulation

My friend and colleague Brad Rogers has a great post at his blog on Queensland Taxi Licenses and Drunken Violence. Brad argues:

Queensland’s taxi regulations are costing the Brisbane public over $80 million per year and may be contributing to drunken violence.  Queensland’s Department of Transport constrains the number of taxi licenses which increases the prices of taxi fares and long periods of waiting at peak periods.  The long lines of drunk people in the early morning on the weekend waiting for a taxi are one of the sources of drunken violence.  Deregulation of the taxi industry will reduce the cost of taxis by an estimated half the current fare and reduce waiting time for customers.  Getting party goer’s people off the street quickly and cheaply will assist in reducing drunken violence. [emphasis added]

While taxi industry deregulation wouldn’t be a complete solution to alcohol-related violence, it would certainly help reduce it to some extent. Regardless, the potential gains to consumers from deregulation are so large we really need to consider it.

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7 Responses to Large fare savings possible from taxi industry deregulation

  1. Katrina Drake says:

    I would really question whether reduced fares would reduce waiting times. Waiting times are long at peak times such as , week-end pub closing, the change of driver shifts , Friday afternoons in the rush to the airport, and rainy days. Reducing fares would just increase demand during these times. Also it would reduce the incentive for taxi-sharing for passengers heading the same way.

    I don’t think that taxi regulations are an effective way to address drunken violence. I would simply introduce a blood alcohol limit for being out in public.

    I don’t disagree with taxi de-regulation, as there should not be large price entry barriers to people who want to start a small business. As long as the taxi operators are adhering to a published Australian standard on safety and quality .

    • bjreconomics says:

      Hi Katrina
      Thank you for your comments.
      I agree there are many other things that can be done to deal with drunken violence however more taxis would help.

      I think I should have made it more clear in my blog that the deregulation of the taxi industry would require a large increase in the number of licences issued. That is unlimited number of licenses issued. Therefore there would be many more taxis in the industry and they would not be constrained by the current Department of Transport rules of when and how they operate. Therefore, some taxis would only operate at peak periods in contrast to the current requirement to do a minimum amount of time throughout the day.

      For example, I may have nothing to do on Friday and Saturday nights. If I think there is some money to be made by using my car for 4 hours at peak time to drive some party goers home from the Valley I can do that. As I don’t value my time too highly at that point I could charge $2 per km or a flat rate of $10 for delivery within 10km of the CBD.

      The issue of standards is tricky. Who sets what standards?
      Standards can be used as a barrier to entry and often are.

      I suggest the safety standard for a taxi is the same as any other car on the road. The quantity of times a taxi is checked by the Department of Transport for road worthy could be increased due to the higher then usual usage.

      However, the quality standard should be up to the individual taxi owner. This is part of the competition of different taxis as is the case with all other businesses in Australia.

      Thanks
      Brad

  2. Jim says:

    Gene / Brad

    You are right. The regulated restrictions on taxi numbers makes no sense at all. Unfortunately all of the States have got themselves into an economic pickle as taxi licences are assets just like property. Changing the rules that materially reduce the value of taxi licences would result in claims for compensation. Can you imagine the size of the compensation claim in Queensland? You would need a lot of efficiency gains to offset the cost of licence buybacks.

    Deregulation was undertaken in the NT in the late 1990s as an attempt to better match supply and demand for services. This was a particular problem in Darwin due to tourists effectively adding 15% to Darwin’s population in the dry season. Here is a link to a review of the taxi deregulation in the NT. I was working in the NT Transport Department at the time. I must admit, my assessment of the deregulation was a bit more upbeat than this one. However, it was not without its problems. I think the NT has since re-regulated the supply of taxi plates.

    http://www.victaxi.com.au/media/36585/the%20impact%20of%20deregulation%20on%20the%20northern%20territory%20commercial%20passenger%20vehicle%20industry.pdf

    • Gene Tunny says:

      Thanks for your comment, Jim. I’ll have a look at the NT work. You’re certainly right the compensation bill would be huge, which is why I think Brad has the idea of gradually increasing the number of licences over time rather than having a big bang reform.

  3. Eric says:

    You can have all the taxies you like but the fact is that many stand empty as there aren’t enough drivers. They earn around $12 an hour. Deregulate and there will be even less cabs on the streets. If you want a cab, prices need to go up. Can’t have cake and eat it.

    • bjreconomics says:

      Hi Eric
      Normally I would agree if there are not enough taxi drivers then there would need to be a pay increase to encourage more people to become taxi drivers. However, in this case the lack of taxis at some times and over supply at other times is a direct consequence of Government regulation.

      The drivers receive between 40% – 50% of the fare that is paid by a passenger. The rest of the fare is paid to the owner of the car. The owner of the car is either the taxi license owner or is leasing the taxi license from the owner. The license owner will demand about 30% of the total fare as a return on their asset. That leaves about 20% – 30% of the total fare for maintenance of the car and other expenses.

      This means if a taxi license is only $100 instead of $510,000 the taxi fare can come down by at least 30% without the driver losing any money. In a deregulated market a taxi owner can set the price at what ever they think is a good price for the service they provide. If they are having trouble getting drivers they will have to pay more and charge the passengers accordingly.

      This is how most products are purchased and sold in the market and taxi services are no different to any other product or service.

      Thank you for your comment and hope you continue to add to the discussion.

      Brad

  4. stephen says:

    Here we go again , pullease $100 …. what planet do you live on, your ordinary drivers license cost more than that. You want some regulation but don’t want to pay for it. Can you please make up your mind.

    In spite of their moans, the public are quite steadfast in their demands for the big cost generators in passenger transport. Any deregulated offering, severely curtails or even disregards these…. see uber and insurance.
    The Biggar report which fails to even consider let alone test the labour psycology that will lead to market failure in any deregulated taxi model especially if it maintains price controls, is currently being proven to be a misguided philosohy in Victoria.

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