Market Failure of the Taxicab Industry

I. Taxi Industry Overview The taxi industry employs 233,000 drivers (the US Bureau of Labor Statistics) to provide transportation services to millions of Americans every day and is important in the urban transportation system in the United States It plays a role. Taxis are the most different than other urban transportation systems (such as buses and subways). The customer does not follow the scheduled route but to select the final destination. This flexibility is reflected in the high price of taxis (Moore and Barack) compared to other public transport services.

If taxis, buses, and other transportation are subject to government regulations or monopolies, black market will often prosper to provide transportation services to unprotected or overly service areas . In the United States, access to the taxi market is restricted in some cities via the medal system. In other words, the taxi needs to obtain special permission and display them on the medal of the vehicle. In most of these jurisdictions, the sale of medals is legal, but limited supplies and consequently expensive medals have brought the market of unlicensed car / illegal taxi business. For example, in Baltimore, Maryland it is not uncommon for individuals to provide illegal taxi services to urban residents.

By restricting entry into the Montevideo taxi market, the market price of a taxi license in 1990 was about $ 60,000 ($ 1990). It is lower than the New York price of $ 125,000, but Uruguay's per capita income is low, Montevideo's licensing market value is more than four times higher than in New York. Regulation of the taxi market leads to the shortage of taxis - the difficulty of taxi taxis in the downtown area, the long waiting time on the phone, consumers to bear high costs, lock down and waste taxis seeking rent Owner Association

This situation seems like a standard case of market failure. Node pricing increases net profit, but imposes personal costs on industry participants. Government intervention is legal and even necessary, in order to drive the industry to a more efficient market organization. However, most governments refuse to accept node prices. These governments recognize that the value of electricity in each country is not uniform. To maintain fiction at the same price nationwide, it will be billions of euros a year for consumers. Therefore, valuable opportunities for government intervention have not yet been realized.