Taxicab Economics: The Freedom to Contract for a Ride
28 Pages Posted: 9 Dec 2002 Last revised: 2 Jul 2010
Date Written: July 2, 2010
In an era of free enterprise and exchange, the taxicab is one of the last industries held tightly to the public breast. Local laws in many cities regulate how many taxicabs are on the roads, what they charge, how old a vehicle can be, and how much English a driver must know. Nonetheless, many of the problems associated with taxicab service are just the ones such laws are designed to meet. Nearly all of us have endured the pain of not being able to hail a taxicab, 'felt' overcharged, had a fruitless exchange with a driver who could not speak the language, or ridden in a jalopy unfit for the road. Still, proponents of these laws stand by their position, warning that the consequences of removing restrictions on price and entry are even worse. This Article canvasses the features of economic regulation - price and entry constraints - to determine if local taxicab markets are unsuited for market control.
This Article plans to answer several sets of questions by its end. To begin, what are the regulatory regimes in the taxicab industry? What do the regulations cover? Thus, I begin by setting out the instruments of economic regulation in the taxicab industry. Since it is often useful to illustrate by way of example, four large cities (New York, London, Washington, and Indianapolis) are discussed.
In attempt to ascertain whether there are good arguments for regulating the taxicab industry, I visit the debate on economic regulation in taxicab markets. The economic rationales for price and entry regulation are considered. Taxicab markets display few, if any, of the symptoms traditionally-associated with a monopoly or an excessively competitive market. Thereafter, I turn to the non-economic rationales for economic regulation of taxicab markets.
Finally, what sort of regulatory regime, if any, is appropriate? What are the options? To answer this, three alternatives to full-fledged economic regulation in taxicab markets are put forward and considered in turn. Specifically, this Part discusses briefly split-pricing, partial regulation, and deregulation as possible regimes and starting points for future analyses of taxicab markets. After reviewing the options, I conclude that deregulation is the best choice in large cities.
Keywords: regulatory law, regulation, law and economics, transportation law
JEL Classification: K0, H7, K2, L9
Suggested Citation: Suggested Citation