Victorian Taxi Inquiry

On the 28th of March the Victorian Government announced an inquiry into the Taxi Industry to be headed by Professor Allan Fels.Allan Fels unleashed on Cabcharge taxi monopoly - ABC News (Australian Broadcasting Corporation) The taxi industry in that state and most other places is an example of regulatory failure.

The taxi industry is dominated by a few large players and exhibits anti-competitive behaviour. Like any other other industry where competitive markets do not exist the taxi industry under supplies and over charges.The Victorian Premier Ted Baillieu said in a press release, “It is obvious that the current industry structure and regulation has failed."


The problem's with the industry listed in the press release included:

• low customer satisfaction, with a sharp decline over the past five to six years
• safety and security for passengers and drivers
• insufficient support for drivers
• too many poorly-skilled drivers with inadequate knowledge
• a high turnover of drivers resulting in a shortage of experienced drivers;
• complex ownership and management structures
• lack of competition
• too much of the industry revenue not being directed to the service providers – the drivers and operators.

Many of these problems are related, the fact that the industry has few players means there is a monosony for drivers and operators leading to lower earnings resulting in a decrease in quality of drivers available and higher turn over. The low quality of drivers naturally leads to decreases in customer satisfaction and  potentially less safe drivers. Of course, this may also be the result of decreased unemployment. I remember catching cabs in the late 90s early 2000s when unemployment was still between 6%-7% the cab driver then tended to be a middle age local man who had been in the game for several years. In today's tighter labour market being a cabbie is most likely less appealing to many locals resulting in the increase in foreign drivers. 

It's likely that the Victorian Government is seeking guidance on regulatory reform rather than proposals to deregulate the industry. When I first saw this article my first thought was, "Why is the government regulating the taxi industry anyway?" Though I'm not familiar with the regulations surrounding the taxi industry. I know that I can't put a meter in my car and a little light on my roof that says taxi and start charging people fares. The question is why? 

One reason of course is revenue. The Victorian Government like other State governments are able to raise significant revenue from the sale of taxi licenses, driver's authorizations and other fees they can extract from this industry. In return for their fees the purchasers of these licenses are able to compete in non competitive markets. These fees and government regulation create a significant barrier to entry into the industry. These barriers can largely be blamed for the lack of competition in the industry. There is no natural monopoly for taxis, anyone can access the roads with a registered vehicle and cars are relatively cheap. In fact starting a taxi business should be one of the easiest industries to enter. Of course it's not. 

When I was traveling in South East Asia there was no shortage of affordable taxi services available. I had a choice between getting a ride on the back of scooter or traveling by car. On one occasion I had traveled far from the tourist part of town and was able to get a lift from a friendly local for a small fee. I was able to decide for myself the level of safety I wished to have and was willing to pay for. Obviously, taxi fares in Australia would still be far more expensive then in Asia under competitive markets but clearly the current system makes it far more expensive than it need be.  

This free market taxi industry was a far cry from the highly regulated industry that exists in Australia. By comparison the taxis in Australia are extremely expensive and scarce. This is even more disturbing when one considers the main consumers of taxi services are the aged, disabled, poor and drunks. A competitive taxi market in Australia would mean lower fares, increased service and increased self employment opportunities for people with a car and driver's license.