Taxi Industry Regulation, Deregulation, and Reregulation: The Paradox of Market Failure

University of Denver College of Law, Transportation Law Journal, Vol. 24, Issue 1, pp. 73-120 (1996)

48 Pages Posted: 29 Mar 2013 Last revised: 20 Nov 2015

Date Written: 1996


During the last fifteen years, Congress has deregulated, wholly or partly, a number of infrastructure industries, including most modes of transport - airlines, motor carriers, railroads, and intercity bus companies. Deregulation emerged in a comprehensive ideological movement which abhorred governmental pricing and entry controls as manifestly causing waste and inefficiency, while denying consumers the range of price and service options they desire.

In a nation dedicated to free market capitalism, governmental restraints on the freedom to enter into a business or allowing the competitive market to set the price seem fundamentally at odds with immutable notions of economic liberty. While in the late 19th and early 20th Century, market failure gave birth to economic regulation of infrastructure industries, today, we live in an era where the conventional wisdom is that government can do little good and the market can do little wrong.

Despite this passionate and powerful contemporary political/economic ideological movement, one mode of transportation has come full circle from regulation, through deregulation, and back again to regulation - the taxi industry. American cities began regulating local taxi firms in the 1920s. Beginning a half century later, more than 20 cities, most located in the Sunbelt, totally or partially deregulated their taxi companies. However, the experience with taxicab deregulation was so profoundly unsatisfactory that virtually every city that embraced it has since jettisoned it in favor of resumed economic regulation.

Today, nearly all large and medium-sized communities regulate their local taxicab companies. Typically, regulation of taxicabs involves: (1) limited entry (restricting the number of firms, and/or the ratio of taxis to population), usually under a standard of "public convenience and necessity," [PC&N] (2) just, reasonable, and non-discriminatory fares, (3) service standards (e.g., vehicular and driver safety standards, as well as a common carrier obligation of non-discriminatory service, 24-hour radio dispatch capability, and a minimum level of response time), and (4) financial responsibility standards (e.g., insurance).

This article explores the legal, historical, economic, and philosophical bases of regulation and deregulation in the taxi industry, as well as the empirical results of taxi deregulation. The paradoxical metamorphosis from regulation, to deregulation, and back again, to regulation is an interesting case study of the collision of economic theory and ideology, with empirical reality. We begin with a look at the historical origins of taxi regulation.

Keywords: Urban Transportation, Taxi Industry, Common Carrier, Mass Transit, Taxi Industry Regulation, Taxi Deregulation, Reregulation, Taxicab Ordinance, PUC, Open Entry, Reglated Entry, Operating Efficiency, Destructive Competition, Regulated Competition, Cross Subsidy, Cream Skimming, PC&N, Pollution, Cabs

Suggested Citation

Dempsey, Paul Stephen, Taxi Industry Regulation, Deregulation, and Reregulation: The Paradox of Market Failure (1996). University of Denver College of Law, Transportation Law Journal, Vol. 24, Issue 1, pp. 73-120 (1996), Available at SSRN:

Paul Stephen Dempsey (Contact Author)

McGill University - Faculty of Law ( email )

3690 Peel Street
Montreal, Quebec H3AIW9

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