Taxi Deregulation: International Comparison Note: This document is provided here as a convenience only and has no official status. Those wishing to make use of this document should acquire a copy from source:

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The University of Leeds
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INSTITUTE FOR TRANSPORT STUDIES

THE UNIVERSITY OF LEEDS

TAXI DEREGULATlON:
lNTERNATIONAL COMPARISON

by

Choong-Ho Kang, BSc(Eng), MSc(Eng)

This Dissertation is submitted by the Candidate
in Partial Fulfilment of the Requirements for the
Degree of MSc(Eng) Transport Planning and Engineering

Institute for Transport Studies

The University of Leeds

August 1998


TABLE OF CONTENTS

ABSTRACT

CHAPTER 1 INTRODUCTION

1.1 OBJECTIVES OF STUDY

1.2 METHODOLOGY AND SCOPE OF STUDY

CHAPTER 2 THEORIES AND PRACTICES OF REGULATION

2.1 THEORIES OF REGULATION

2.1.1 Economic Rationale for Regulation

2.1.2 Theories of Regulatory Origin

2.1.3 Types of Regulation

2.2 REGULATION IN THE TAXICAB INDUSTRY

2.2.1 Characteristics of the Taxi Industry

2.2.2 Purposes and Types of Regulation

2.2.3 Rationale For and Against Regulation

2.2.4 Regulatory Capture in the Taxi Industry

2.3 INTERNATIONAL TRENDS IN REGULATION

2.3.1 Privatisation and Deregulation

2.3.2 Regulation and Deregulation in the Taxi Industry

CHAPTER 3 : CASE STUDIES OF TAXI DEREGULATION

3.1 USA

3.1.1 Introduction

3.1.2 New York

3.1.3 Other Cities

3.2 UNITED KINGDOM

3.2.1        Outline of the Taxi Industry

    3.2.2  Regulations

3.2.3 Deregulation

3.3 SWEDEN

3.3.1 Outline of the Taxi Industry

3.3.2 Regulations before Deregulation

3.3.3 Deregulation

3.4 NEW ZEALAND

3.4.1 Introduction

3.4.2 Regulations before Deregulation

3.4.3 Deregulation

3.5 JAPAN

3.5. l Outline of the Taxi Industry

3.5.2 Regulations

3.5.3 Deregulation

3.6 SOUTH KOREA

3.6.1 Outline of the Taxi Industry

3.6.2 Regulations

3.6.3 Deregulation

3.7 OTHER COUNTRIES

3.7.1 Australia (Adelaide)

3.7.2 Ireland

3.7.3 The Netherlands

CHAPTER 4 EFFECTS OF DEREGULATION

4.1 RESULTS FROM THE EXPERIENCE OF USA

4.1.1 Entry and Fare Deregulation in Several Cities

4.1.2 Leasing System in New York

4.2 RESULTS FROM THE EXPERIENCE OF UK

4.3 RESULTS FROM SWEDISH EXPERIENCE

4.4 RESULTS FROM THE EXPERIENCE OF NEW ZEALAND

4.5 RESULTS FROM AUSTRALIAN EXPERIENCE (ADELAIDE)

4.6 POTENTIAL EFFECTS OF DEREGULATION IN OTHER COUNTRIES

 

CHAPTER 5: ANALYIS OF THE EFFECTS

5.1 A SUMMARY OF THE RESULTS

5.2 COMPARATIVE ANALYSIS OF THE RESULTS

5.2.1 Number of Taxis

5.2.2 Level of Fares

5.2.3 Quality of Services

5.2.4 Profitability of Industry

5.2.5 Licence Values

5.2.6 Structure of Industry

 

CHAPTER 6: CONCLUSION

ACKNOWLEDGEMENTS

REFERENCES

LIST OF TABLES

3.1 Growth in Nature and Scope of Taxi and Hire Car Licensing

3.2 Changes in the Japanese Taxi Industry

3.3 Status of Taxi Industry in South Korea

3.4 Growth in Scope of Taxi Licensing during 1992-1994

3.5 Taxis in Six State Capitals in Australia

3.6 Taxi Licences in Dublin since 1970

4.1 Mean Fleet Sizes since Deregulation by the Transport Act 1985

4.2 Changes in Fleet Size and Composition during 1986-1991

4.3 Changes in Number and Availability of Taxis in Six Cities after Deregulation

4.4 Changes in the Number of Taxi Companies since Deregulation

5.1 Measures for Taxi Deregulation in Experienced Countries

5.2 Results of Taxi Deregulation in Countries


ABSTRACT

Regulations have been implemented as government intervention in the market to ensure efficiency and equity by correcting market failure. Then, as can be seen in the transport industry, excessive regulation causes many side-effects such as inefficiency in its management and unreasonable protection of incumbent operators, which obstruct the industry to respond quickly to the changes in economic structure and social surroundings In consequence, since 1970s, deregulation and privatisation have occurred in many industries to enlarge freedom of economic activities, and taxi industry has also been involved in that changes in several countries including USA, UK, Sweden, New Zealand and some others.

The deregulatory measures adopted varied in each country based on the different inherent conditions. The results also appeared differently. As a whole, however, the effects of taxi deregulation were not so beneficial to consumers due to increased fares and deteriorated service quality. In addition, the returns to operator as well as drivers also decreased, and there was no significant evidence of innovation in the industry. On the other hand, the structure of industry became to be more fragmentary with increased single operators and taxi leasing.

Therefore, this study conclude that market entry should be regulated somehow, and the level of fares also need to be controlled. In addition, more stringent regulations are necessary in order to ensure high quality and improved safety in taxi services. Nevertheless, it does not means every regulation is always desirable in every condition, but some regulatory reform is needed based on the inherent conditions of the taxi industry in a city or a country. Namely, entry restriction should be relaxed in the case that the current number of taxis is quite small compared existing demand; Level of fares should be more flexible within a range; Exit system can be introduced to ensure high quality; Licence trade and leasing must be prohibited.


CHAPTER ONE
INTRODUCTION

1.1 QBJECTIVES OF STUDY

The feature of the taxicab varies significantly from country to country in terms of market share, type of vehicle, operating system, level of regulation and even the name called. Its role and proportion in the whole transport system has relatively decreased comparing to the public transit such as bus and rail, however, it still plays an important role in most countries. It provides an essential service for some groups of people and comprise an complement to the smooth operation of public transit whether in urban or inter-urban.

Deregulation, alongside privatisation, has occurred in transport industries in many countries since 1970s, and taxi industry could not be excepted from such a world-wide trend any more. Taxi deregulation has occurred in several cities and countries since late 1970s, with various aspects and contents. Therefore, the first objective of this study is to examine the background and practical procedure of deregulation as well as regulation on the taxi industry in several countries where deregulation has occurred so far.

Meanwhile, some arguments has risen for or against the deregulation of taxi industry, reflecting its practical results from those countries. However, the controversy seems to be still going on without concurred conclusion yet. The second objective of this study is to verify various theories and arguments for and against taxi deregulation by comparing and analysing the results of the case studies. By doing so, and anally. this study aims to find out the most reasonable direction of regulation or deregulation measures in the taxi industry.

1.2 METHODOLOGY AND SCOPE OF STUDY

This study will be conducted by the following stages: First, collecting appropriate data on taxi regulation as well as deregulation. Second, reviewing the previous studies and relevant literature on the basic theories of regulation, and. establish a theoretical frame for this study. Arguments for and against taxi regulation will be reviewed in order to establish hypothesis of the study. (Chapter two) Third, summarising the background and contents of taxi deregulation as well as regulation, in those countries where both regulation and deregulation has occurred. This stage will be tried to involve as many countries experienced as possible, if the required data are available. (Chapter three)

Fourth, the results will be summarised in terms of changes in the number of taxis, fares, service quality, structural changes and innovation in the industry, etc. Moreover,some significant results are to be analysed to find the effects of taxi deregulation by comparing each other. (Chapter four) Finally, Further analysis will be conducted in terms of some crucial issues (Chapter five), and then the study will be concluded by suggesting the most reasonable way to regulate or deregulate the taxi industry. (Chapter six)

In a comparative study, appropriate data are essential. Thus, a questionnaire was designed and sent to several persons who are expected to have theoretical and practical experiences insomecountries to obtain appropriate and homogenous data. Unfortunately, however, there was no replies from any of them. Consequently, this study must entirely rely on the existing data available.


CHAPTER TWO
THEORIES AND PRACTICES ON REGULATION

2.1 THEORIES OF REGULATION

2.1.1 Economic Rationale for Regulation

There are two main economic rationale for regulation, that is. to ensure efficiency and equity. A perfectly operating market achieve an equilibrium i.e. Pareto-efficient allocation of goods and production factors by price system which was called as 'invisible hand' by Adam Smith. Economic efficiency requires that the social marginal cost of certain goods and services be equal to the price. However market does not always operate perfectly with the right price but operate imperfectly, and this results in the fail of market mechanism. Government intervention by regulation is firstly justified to correct this ‘Market Failure’. According to Gentzoglanis (1992), the market failure may arise from a number of reasons: the existence of public goods, the presence of externalities, the formation of monopoly by economies of scale, and the existence of imperfect information.

Firstly, if some goods and services have a nature of ‘Non-excludability’, namely, no one can be excluded from consuming it, and that of ‘Non-rivalry’, namely, one's consumption of it does not affect other’s consumption without reducing one’s utility, it is defined as a ‘Public Goods’. In the free market, the production as well as pricing of this public goods are difficult to achieve equilibrium, because no consumer is willing to pay for it. This may cause market failure, thus regulation on such public goods and services can be justified.

Secondly, externalities is said to exist when the activities of one party affect positively or negatively another party and the former does not take them into consideration. In this case, the supply of such goods and services are not correspondent to the demand in a free market, which causes misallocation of resources, namely market failure, thus government intervention is required.

Thirdly, a firm realises ‘Economies of Scale’ in the case of which the firm’s average cost of production is declining with increasing levels of output. When the minimum average cost is achieved at high levels of output compared to the size of the market, the number of firms in the industry may be relatively small and the firms may be able to charge prices higher than their marginal costs of production. This monopoly market power results in inefficiencies in the allocation of the society’s scare resources. Thus, in order to reduce such inefficiencies, it is argued that market power of the firm should be restricted by regulating the fares to be charged.

Finally, imperfect or asymmetric information is said to exist when one party has some information that the other has not. In that case, costs of retrieving the missing information are so high and time consuming that customers prefer not to consume the goods or service at a11, which provokes a dumping effect on the demand, or to make the transaction under imperfect information. This encourages such production activitiies that exploit customers, so that it rests in inefficient allocation of resources. Therefore, it is argued that some degree of regulation is necessary to ensure efficiency by reducing the transaction cost concerning to this imperfect information.

In addition, there is non-economic reason for government intervention on the economy, namely, equity and welfare. It is justified to ensure the same opportunities to compete in a fair way, influencing the distribution of incomes and wealth by various measures such as taxes, transfers, income policy or rent policy.

2.1.2 Theories of Regulatory Origin

It is generally argued that regulation is done to promote the public interest by correcting the perceived market failure. However, in real practice, it is done for the sake of each interest group such as regulators, regulatees and public. The theory of principal and agent revolves around these parties which have an interest in, but do not have the same objectives and do not have equal access to information. Regulatory policy is determined and implemented through a complicated set of relationships, each of which involves multiple principals and agents, that is, public - elected politicians - government officials - autonomous regulators - the regulated. The relationship of each principal-agent set can distort the linkage between the policy preferences of the public and the policy outcomes pursued by regulators. In the case where the regulated bodies capture the regulator or politicians, the regulated then become principals setting goals for the regulators. There are several theories of regulation classified by the interest mechanism of regulation.

Firstly, Public interest theory assumes that the aim of governments is to maximise economic welfare because they are agents for the public and should act in the best interests of the public. This theory argues that economic rection is a response to public demand for rectification of inefficient and/or inequitable practice. There are two types of regulation within the scope of public interest relation, that is, legal and administrative.

Secondly, Private interest group theory represents that a regulator will eventually act in the interest of some private group rather than public, and most likely, the regulator will tend to act in the interests of the regulatees. This is because, whatever the original motives of regulation, a regulator, by restricting the feasible set wide which the regulatees are constrained to operate, obtains and accepts some degree of responsibility for the regulatees and so any regulation tends to become self-reinforcing. Furthermore, regulators come more and more to identify with the problems of the industry they regulate even though the regulation was initially introduced to correct for a market failure, which is called as ‘theory of regulatory capture'. This may be more likely if the regulation is introduced in response to a demand from the industry. Choi (1994) notes that this regulatory capture, along with venality and incompetence of regulators, can cause a regulatory failure. Regulation of the taxi industry is very vulnerable to capture by the industry, which may lead to higher fares than necessary and smaller number taxis in a licensing area.

Finally, Regulators' interest theory represents that whatever the original impetus for and purpose of regulation, once it has started, the regulatory agency will develop its own interests and priorities. These are related to the bureaucrat’s utility function containing salary, self-preservation, perks, prestige and power, an easy life, etc. The extent to which there is such problem depends on the ability of the government to control the regulator.

2.1.3 Types of Regulation

Every sort of regulations, according to Choi (1994), can be classified into two categories, namely, economic and social. A typical one of the economic regulation is entry. regulation, which restrict participating in a certain industry and operating one’s business in it. There are several ways in this entry regulation such as permission for public, service industry, restricting use of scarce resources, occupational licensing and patent. In contrast with entry regulation, exit regulation is sometimes undertaken in order to, mitigate the impacts of closing a business on its workers, related firms, local economy and society.

The second type of economic regulation is price regulation with maximum limit or minimum limit. Maximun price regulation is mainly applied to the monopolistic or, oligopolistic items, and minimum wage is a kind of minimum price regulation. Price regulation can cause some socio-economic side-effects by provoking excessive demand. for those goods or services regulated while reducing supply and investment.

The third type of economic regulation is prevention of monopoly or oligopoly, which aims not to restrict market competition as like the other two economic regulations do, but to ensure market competition.

Social regulation, in general, is imposed on social activities of companies, which have the external impacts on the society beyond the company, e.g. environmental pollution, and health of the workers, infringement of consumer’s right, etc. Thus, this social regulation has high degree of political nature and it trends to enlarge according to the development of industrial society. In addition, social regulation induce indirectly a redistribution of income by protecting the economic weak and by pursuing 'quality of life’ and by ensuring social equity. Quality regulation in the taxi industry can be classified as a kind of this social regulation.

Mitnick (1980) classifies the regulatory measures according to whether they regulated by incentive or by directive predominates. The former includes tax incentives, which are tax credits or rebates for performing or not performing certain acts, user and effluent charges, which effectively price certain resources or services, subsidies, which are grants to support performance or non-performance of an activity, a promotion campaign, i.e. changing the performer rather than the alternatives he faces, and laissez-faire, in which the activity that would be regulated is left alone. Whereas, the latter includes public

enterprise. in which the activity may be performed directly by the government, common law, a body of case-by-case court-made law, and administrative rules and standards.

2.2 REGULATIONS IN THE TAXICAB INDUSTRY

2.2.1 Characteristics of Taxi Industry

Taxicabs are classified as an intermediate sort of public transport mode, namely, paratransit, which is positioned between private cars and buses. They have no regular route, differed from the public mass transit modes such as bus and rail. In most countries, taxis are given the right to ‘ply for hire’ so that they can offer their services to the users either by cruising or by waiting for hires in the ranks. They usually play an important role in those areas where other public transport modes are not provided appropriately, and for those who can not easily access to other transport mode as like the disabled. The taxi industry has high labour-intensive characteristics. thus the proportion of workers/drivers are very important in operation. For example, the labour cost usually exceeds more than 50% of total operating costs.

Taxicabs are close substitutes with the public mass transit, which obviously has the nature of public goods because one extra passenger does not exclude another from using it at the same time as far as the vehicle is not full. Therefore, the pricing of one affects the demand of the other, i.e. if one is priced low it will be over-used and the other will be under-used. Schreiber (1975) argues that the price of taxi should exceed the marginal cost by the same amount of which the price of mass transit exceeds the marginal cost, in order to avoid over-use of taxis and under-use of mass transit.

It seems that taxicabs may have the monopoly market power in the small cities and rural areas where there is no adequate substitutes such as bus or rail system. This can be supported by the existence of premium on taxicab licence in those cities where entry regulation is performed. The monopoly market power can be a potential barrier to entry with potentially significant misallocation of resources. Whereas, in urban areas and big cities the possibility of hit-and-run entry may restrain the established firms from exercising their market power, according to the contestability theory.

Taxicabs impose two main negative external effects, namely, traffic congestion and air pollution. The price of a ride in a system of free entry will cover only the private cost, while the social cost per ride, which includes the externalities, will necessarily exceed the price. Internalisation of these externalities is possible by restricting entry into the industry and by using a different pricing mechanism as Schreiber (1975) has argued. In other words, it is necessary to raise the price and reduce the number of cabs, which can be achieved by the combination of both price and entry regulation, in order to restrict both usage of taxicabs and cruising to somewhere near what would be the optimal in the absence of externaltities.

The transaction costs, which come from the imperfect information, are present in the taxicab industry, especially in the cruising cab market and in taxi ranks. Riders are not aware of the quality of the service, the safety of the vehicle and the liability insurance of the taxis. These elements are particularly important and it is difficult to be electively identified by riders. On the other hand, no empirical evidence exists concerning the presence of economies of scale m the taxicab industry. However. significant economies of scale seem to exist in the radio-dispatch market which mainly result from indivisibilities in the inputs used in dispatching, managemmt and advertising.

From these characteristics, namely, public service, externalities, monopoly and imperfect information, which are causal factors of market failure, regulations are easily identified in the taxi industry.

2.2.2 Purposes and types of Taxi Regulation

Conventionally, taxi regulation has been largely concerned with public order or consumer protection rather than the economics of the industry. There are several traditional objectives of taxi regulation, namely, optimal economic performance of the trade, public safety, consumer protection, availability and quality of service, management of congestion and pollution, etc. According to Toner (1992), public safety involves protecting the consumer and other road users in matters concerning the physical safety and suitability of the vehicle, implying regulation of standards on the vehicle and driver. It also involves requirements for operator’s insurance coverage for compensating accident victims. Consumer protection is concerned with preventing operators in a strong bargaining position from exploiting weak consumers, applying those appropriate regulatory measures such as Fare setting and taxi meters mandatory, the licensing of drivers and the plating of cabs. Moreover, in some countries, driver’s name and vehicle number must be posted in plain view to allow passengers to complain of violations. As for availability of service, regulations are imposed on taxi operators to ensure provision of service at all times and in all areas such as obligation to provide service whenever required, mandatory belonging to a radio booking center. etc. Regulation for service quality involves monitoring the vehicle’s quality and the driver's ability such as area knowledge and manners. Congestion and pollution may be mitigated by prohibiting taxis from cruising in a congested town centre and by imposing return to rank rules. This requires a rank designation policy which can cope with the number of cabs and possibly a restriction on the number of licences issued. Economic performance is concerned with the feasible combinations between price and service level, which could be sustained in a given taxi industry. Regulators may want to control maximum fares, cab numbers and taxi ranks in order to be able to push the market towards the best state that market will attain.

On the other hand, Beesley (1973) suggests that there are three important elements of regulation in the taxicab industry, the conferment of monopoly rights, the imposition of entry conditions and the control of fares. Monopoly rights consist of the exclusive franchise to organise taxi services in a geographically limited market area, and the exclusive right to ply for hire. In order to exclude other vehicles not permitted to ply for hire, it may be necessary for taxicabs to be readily identified by using a particular distinctive vehicle or livery.

According to Trudel (1995), there are various methods to set the number of licences.

(1) Arbitrary ceiling, set by freezing the number of licences to meet needs;

(2) Use of a ratio to determine the number of licences, which is generally based on the population of the area served. In Toronto, however, a more sophisticated ratio is used based not only on the local population, but also on the number of commuters, air passengers and convention participants;

(3) Proof of necessity required by the applicant before issuance of a new licence;

(4) Franchise system, whereby the authority awards the right to operate a certain number of vehicles on a contract basis and subject to charges;

(5) Minimal criteria, where access to the market is conditional to the operator’s compliance with minimal criteria set by the authority, such as vehicles, insurance, professional training and driver’s knowledge, availability of service, minimum number of taxis per company, etc. Some of these criteria can be very stringent and constitute a formidable barrier to entering the market. A typical example of this can be seen in London, where the high cost for obtaining a licence represents an effective barrier of entry to the market.

Fares control can takes two forms, namely specification of the level of fares and regulations concerning the fares structure. Control of the level of fares can range from laying down the amamum permissible &re or setting a minimum See to specifying the actual fare which must be charged. If the administered fare is set too low, the firms are expected to leave the industry. On the contrary, if it is set too high, and demand is price inelastic. we would expect industry profits to rise and therefore either the number of cabs to increase or, if there is a limit on the number of licences, a scarcity rent to accrue to the holders of licenses. Control of the fares structure governs such things as variability of fares throughout the day, the relationship between time spent and distance travelled, and extra charges for multiple occupancy or luggage.

2.2.3 Rationale for and against Regulation

Taxi industry probably is the most conflictive field where both arguments for and against regulation contradict each other. Some authors argue the industry should be deregulated for more economic efficiency, whereas others contend it must not deregulated for public safety and consumer protection. The view of operators and that of drivers also contradict each other, however sometimes they are consistent. The main rationale of each argument can be summarised as follows:

2.2.3.1 Market Entry.

The first reason for entry regulation is to keep balance between supply and demand in the taxi industry by controlling the number of licences. Without regulation, the number of taxis may increase in a large scale because the capital required to enter the market is relatively small and this larger supply compared to demand lead to an excessive competition in the industry. Therefore. preventing an excessive competition is another rationale for entry regulation. Mitigation of traffic congestion has been argued from the beginning of entry restriction on carriages in London and Westminster in 1635. Namely, without regulation, free entry will lead to excess demand for rank space, which may result in traffic congestion and, as a result, economic inefficiency.

Toner (1992) suggests another significant reason for entry restriction, namely, it make it easier to control the quality of the trade. Regulation of quality can maintain continuity of ownership and supply, and this reduce the administrative burden of regulation. It also impact on vehicle quality. Additional argument for regulation is that deregulation will alter the price / service balance which exists in the market, and it can cause serious problem in the light of existing licence premium (monopoly rents). The former is because unrestricted entry will reduce taxis' occupancy rate and create pressure for increase fares to onset the loss of revenue. While, the latter comes from an existing situation that many people in the trade have purchased plates at high price, thus it can be inequitable to eliminate the licence value by opening entry.

On the other hand, the opponents criticize these arguments in terms of practice and effects of entry regulation. First argument is that regulation cost money, not only to improve the quality of vehicle, but also to set and enforce the regulations by the authority. Another argument is that regulation confers positions of power and patronage, however, the regulators can limit the feasible set which possibly constrains operators and prevents profit-maximisation. Furthermore, regulators can be captured by regulatees so that they allows regulatees to decide policy. There is a count argument against protecting the licence premium, namely, the existence of licence premium is simply a legacy of past mistakes which should not be allowed to influence future policy. Thus, existing high licence value should be transferred from producers to passengers in the form of lower waiting times or lower prices. This is because the gain to consumers would be greater than the loss to producers. The final argument against entry regulation in the taxi sector is that such controls do not apply in the very similar hire car sector.

2.2.3.2 Fares Control.

Proponents of regulation argues that taxi is difficult to compete in price because of the operating characteristics such as FIFO (first-in-first-out) at taxi ranks. Moreover, the upward pressure on prices exist in a cruising cab trade because the demand for taxi services is fairly price inelastic. Namely, individual driver is not likely to lose passengers if he increases his fares, while he can not expect to attract more passengers by cutting fares. Such lack of competition and the upward pressure on price give grounds for price regulation. Another rationale for the control of taxi fares is to ensure equity between areas having different demand, and to prevent the exploitation of ignorant consumers or consumers in a weak bargaining position. Besides these, it is needed to maintain public order by avoiding price competition among drivers at ranks.

In contrast, the most common argument against fare control is that there is no control on the private hire fares. They argues the market will produce a more efficient solution on the price competition than the average cost pricing associated with a regulated fare. Additional argument is that there is no guarantee for the regulator to set the right level of price, and there also exist a possibility of regulatory capture. Thus the fares can be set at higher level with which the operators can obtain monopoly profits.

There has been continuous controversy concerning the justification of price regulations in the taxicab industry. Shreiber (1975, 1977, 1981) argues that the taxicab market, in which cruising is the main arm of operating, will seldom give rise to price competition, and reduction in price is unlikely because of the spatial structure of the industry. A rise of price is likely if the price is low enough to cause passengers waiting time to be relatively long. Therefore he argues price regulation is necessary to achieve a satisfactory price/availability combination. His point of view about the absence of incentives to price competition has been criticized by Coffman and Williams.

Coffman (1977) argues that there is no a priori reasons to reject the possibility of price competition in the taxicab industry provided moderately large fleet operator. In this case, price competition would occur by advertising lower fare and by giving a distinctive appearance to the cabs so that customers can distinguish them.

Williams (1980) argues that the price competition is feasible in the taxicab industry due to the existence of taxicab ranks and the telephone booking system. which enable consumers to choice cheaper taxis. Consequently, this price competition will cause to lower taxi fares, moreover, competition with mass transit will also force taxi fares down.

2.2.3.3 Quality regulation.

It has been widely argued that regulations for ensuring high quality of service and improved safety are necessary to protect the public. Such regulations are imposed on the standard of vehicles and quality of drivers. Quality regulation requiring a distinctive vehicle and livery is also helpful to ensure easy recognition of taxis. On the other hand, there is much less argument against the quality regulation, instead, it can be problematic that how to make its control level be appropriate. In fact, even those economists, who insist that any kind of economic regulation must be removed, agree to maintain the quality regulation in order to protect consumers and to ensure safety.

2.2.4 Regulatory Capture in the Taxi Industry

As mentioned earlier, taxi regulators are very susceptible to capture by the industry, thus they can act in the interest of operators rather than customers. As a result, in the case that both entry and fares are regulated by them, the number of licences may be restricted too much and fares may be set too high. In general, according to Mitnick (1980), this regulatory capture is caused by several actors such as information dependence, information complexity, incentives and rewards, etc.

Hara et al (1992) illustrate the characteristics of taxi industry which make the regulators be captured so easily. First, taxi consumers, mainly the poor and business group, tend to show only sporadic interest in the industry. Second, the regulatory work-load is high relative to the amount of economic activity at stake. Actually, there are so many operators in taxi industry to deal with, due to the most fragmented structure of industry with domination of owner-driving operators. Third, the industry tends to be politically unsophisticated. While operators will participate in the political process, participation by drivers tends to be sporadic, massive and negative. As results, the regulators may become to cooperate with the industry, even at the expense of public welfare.

2.3 INTERNATIONAL TRENDS IN DEREGULATION

2.3.1 Privatisatian and Deregulation

Government intervention in the market economy has been introduced in the several developed countries during the late 1920s and 1930s when the Depression hit those capitalist countries. Thereafter it has spread until 1970s, which resulted in strengthening of regulation on private sector and increase of public sector in the industry. This government intervention, however, raised various side-effects, notwithstanding that it was expected to correct the market failure. As results, both deregulation of private sector and privatisation of public sector has become the most important issue in those developed countries since mid of 1970s. The developing countries also experimented with privatisation and deregulation in the 1980s, with different degrees and contents. In addition, political changes taken place in the Soviet Union and Eastern Europe at the end of the 1980s made those countries be no more free from the massive and timely worldwide trend of privatisation and deregulation.

There are several common reasons for deregulation even though its background vary from country to country. It is argued that increase of government intervention causes the industry to lower its efficiency and competitive power, and this results in an inflation of the economy. Restriction on the economic activities by excessive regulation obstruct emerge and development of new industry under situation that circumtance surrounding industry changes very rapidly with high-tech and progress of information. In some case, discriminating regulation on the multinational corporation can be a factor of conflict in the international trade which has increased considerably to become vital element of national economy. Whereas, the efficiency of government is very low in spite of enlarged regulatory authorities, which is called ‘X-inefficiency’. Therefore, it is justified to ensure contestable condition in the industry by relaxing those regulations, and to realise so called 'a small government’ by reducing the proportion of public sector, namely privatisation and deregulation.

In the transport industry, excessive regulation causes many side-effects such as inefficiency in its management and unreasonable protection of incumbent operators, which obstruct the industry to respond immediately to the changes in economic structure and conditions. Hence, it becomes a crucial issue of the transport policies to enlarge free of economic activities by deregulating the industry.

2.3.2 Regulation and Deregulation in the Taxi Industry

It is said that the origin of taxi is the hackney and rickshaw (or sedan chair) which had been operated as a public transport mode in several countries such as UK and Japan, thus, the regulation in the taxi industry has a long history. As early as 1635, hackney carriages in London and Westminster were restricted as to what they could and could not do because they congested the streets, and the number of vehicles was limited to restrain the excessive superfluous use of coaches. In Japan, the number of sedan chair was limited by licensing during 1674-17 6, followed by a strict regulation on entry into the rickshaw market which has replaced sedan from 1870. In the other developed countries, the regulation in taxi industry was introduced via 1920s or 1930s mainly by the licensing institution, and it has continuously enlarged to the level of fares and services until 1970s. However, some economists has evolved many arguments for and against taxi regulation since 1970s, and a number of countries have pursued a policy of deregulation in their taxi markets over the last twenty years, such as USA, UK, Sweden and New Zealand. Among these countries, taxi regulations were removed at national level in Sweden and New Zealand, while it has taken place at more the city/local level in the USA and the UK. In addition, while taxi deregulation is on going in some countries, such as Japan, Korea and Ireland, it is expected to occur in early future in Netherlands. The experiences of these all countries, where taxi regulation has been removed or relaxed, are stated in the subsequent chapter.


CHAPTER THREE
CASE STUDIES ON TAXI DEREGULATION

3.1.1 Introduction

Horse-drawn cabs served U.S. cities without significant regulation through the 19th century. The first motorised taxicabs appeared in 1897 when the electric carriage and wagon company placed 12 electric taxicabs in New York, and 65 gasoline-powered automobiles, equipped with taximeters, were introduced in 1907. Within a year, however, internal combustion-driven taxis replaced all other forms of taxis.

Taxi industry, as like other transport industry, was brought under regulation during the late 1920’s and 1930’s in most U.S. cities, largely because of the extremely competitive condition stimulated by the Depression. The Regulatory work of transport is complex because restrictions derive from federal, state, and local government jurisdictions. Taxi industry was usually regulated by the local government, except in thee states where taxis were regulated by the state. Though regulation was not uniform across cities, it largely consisted of the following elements:

(I) Entry regulation: entry was restricted and further increases in the number of licences was assessed by either objective criteria (e.g. number of taxicabs to population) or by standards of convenience and necessity

(2) Price regulation: maximum and minimum rates are prescribed

(3) Quality regulation: companies must meet certain service standards, e.g., a 24 hour availability of service, certain level of response times and a radio dispatch facility During the late 1970’s and early 1980’s, substantial economic deregulation has occurred at the federal level in the airline, intercity bus, rail and motor carrier industries. As a consequence, the taxi industry has also significantly deregulated by 1985 in 22 cities in US, where the telephone order market constitutes at least 70% to 80% of total taxi market, such as San Diego, Seattle, Phoenix, etc. According to Cervero (1997), however, almost all (except only 4 cities) of those 22 cities have re-regulated taxi industry, generally imposing limits on market entry and setting fare ceilings.

3.1.2 New York

3.1.2.1 Outline of the Taxi Industry.

There are 40,000 licensed taxi drivers and 11,787 licensed taxicabs (yellow medallion taxicabs) in New York City. The medallion system dates from a Depression-era city law designed to address an overabundance of taxis that depressed driver earnings and congested city streets. The number of cabs had peaked at 21,000 in 1931, and fell from 13,595 in 1937 to the current number of 11,787 by the late 1940s because the licences of taxi owners leaving the industry were not reissued.

Yellow became the uniform color for all cabs in 1969 to distinguish them from ‘gypsy’ cabs. The yellow medallion taxicabs are the only vehicles allowed by New York City law to pick up passengers hailing on the street, having not served telephone prearrangement since two-way radios were removed from them in the mid 1980s.

Related industries are in the category of ‘for-hire vehicles’(FHVs), which are permitted to serve passengers by pre-arrangement, generally through telephone calls for service. This sector includes vehicles commonly called car services, liveries, black cars and limousines. The Taxi and Limousine Commission licenses 30,000 FHVs and the 600 base stations from which they operate. According to the Taxicab Fact Book (3rd edition, May 1994) 3,670 taxicabs are driven by the medallion owner, and 20% of them are leased to a second driver in 1993. Most other cabs are not driven by the owner, but leased to two drivers on a double-shift basis.

3.1.2.2 Regulations.

The most significant law is the Haas Act adopted in 1937, which provided for the automatic renewal of vehicle licences and allowed transfer of licences between owners, conditioned only on approval of the new owners' qualifications by city. This transferability provision was vital to the subsequent establishment of licence values. The Act also erected a wall between fleet-owned taxi licences and individually owned licences, a clause intended to ensure the survival of owner-drivers.

The Taxi and Limousine Commission (TLC) was created in 1971 by the City Council legislation to regulate and improve taxi and livery service in New York City and establish an overall transportation policy governing these services. As a city agency, the TLC sets the taxi fares, licenses taxi drivers and vehicles, adopts rules that drivers and cab owners must follow, and puts each taxicab through an extensive inspection every four months.

The TLC establishes licensing standards for both drivers and owners (such as requiring that all new drivers pass an English test and training course), and determines the size, age and condition of vehicles. For example, TLC adopted regulations in 1996, requiring that taxicabs be replaced after no more than 5 years in service, and that vehicles be brand new when put into service. In addition, the TLC investigates passengers' complaints, issues and adjudicates summonses for rule violations, and imposes fines, and suspends or revokes licences, where appropriate. No new taxi licence has been issued for over the last 50 years, whereas, about 400 new drivers were licensed each month in 1993 by the TLC. Taxi inspectors stop cabs on the street to check for proper licence, and issue summonses when they find rule violations or unsafe conditions.

3.1.2.3 Deregulation.

The Act also created a mechanism under which the city could issue additional vehicle licences after a deliberative adminitrative process. This provision, which some critics of the Act have ignored, was never exercised and was removed in a 1971 rewrite of the law. When the city failed to expand the taxi industry despite post-World War II economic growth, taxicab licences developed a trading value in the open market. After four decades of often-explosive increases, individually-owned licences now trade at $155,000 and fleet licences at $220,000 each.

TLC legalized leasing in 1979, so that nearly all fleet drivers became lessees by the mid 1980s. Moreover, leasing practices have been stable among fleets since the mid 1980s. On the other hand, many of minifleets (in which two drivers jointly created a corporation, each driver operate a taxicab owning one-half of the stock) were born by selling fleets-owned meda11ions to individuals in the early 1970s and increased to 4,700 in 1981. For the purpose of the Haas Act, these were still "fleet" licences since they were owned in groups of two or more, however, operationally, they looked and acted like owner-drivers. Nearly all those minifleets were not operated by the owner-driver, but operated by other drivers at the end of the 1980s, because they were also leased. The lessee typically arranged with another driver to operate a second shift for a few hours, so called “subleasing". By 1993 the method of leasing changed to such a method that minifleet lessors lease to two full-time drivers separately, charging each driver a leasing fee. Individual owners began to follow the same course as minifleet owner-drivers in the mid 1980s, so that only 52% of individually-owned cabs were owner-driven by 1990. TLC adopted a rule, effective in 1990. to preserve owner-driving and return the individual medallion licence to the original 1937 concept. As a result, three-quarters of all individual cabs are now owner-driven. Under the lease arrangement, a driver pays the taxi owner a flat amount for each shift or each week. The driver then has exclusive use of the cab for that period of time. Owners are guaranteed the lease fee for each shift (or week) the cab is leased, regardless of how much time the driver actually works or how much money the driver takes in. Drivers' earnings are the difference between their total revenues (fares and tips) and their expenses {lease fees and gasoline).

New York City recently established a plan to auction 400 plates during 1996-1997 for the purpose of helping budget deficit, which would be the first issue of medallion since 1937. In consequence, 53 owner-driver and 80 fleet medallions were auctioned in May 1996 at $170,000-$177,000 for each owner-driver medallion, and at $210,000-$221,000 for each fleet medallion respectively.

3.1.3 Other Cities

As mentioned earlier, many U.S. cities have partially or wholly eliminated economic regulations on their taxicab industry at local government level during the late 1970’s and early 1980’s. Among the cities affected were San Diego, Seattle, Phoenix, Portland, Sacramento, Kansas City and Milwaukee, as well as some smaller cities of significant size such as Tucson in Arizona, Oakland and Fresno in California, Raleigh in North Carolina, etc. However, taxicab industry has been still strictly regulated in most large cities such as Los Angeles, Chicago, Boston, New York, Miami, Buffalo, Houston, and San Francisco, with tight restriction on market entry. Furthermore, in many cities such as Atlanta and Seattle, taxi industry was re-regulated in the mid 1980’s in several years after having been deregulated. due to various side effects of deregulation. However, further discussions on taxi deregulation are still on going in America, and it has occurred or tried in several cities in 1990's, such as Indianapolis (1994), Houston (1995), Denver, Hartford and Boston, etc.

3.1.3.1 Phoenix (Arizona).

Arizona has had economic regulation on the transport industries since it was admitted as a state in 1912 by the Arizona State Constitution, which provided a jurisdiction to the Corporation Commission over public service corporations including common carriers. A certificate of public convenience and necessity was required to operate as a motor carrier within the state. In 1933, a concept of the ‘regulated monopoly’ became the rule allowing a constitutional amendment which indicated legislative intent to protect existing motor carrier operators from further competition. The commission was given an authority to prevent unnecessary duplication of service, and it was required to mail hearing notice of applications for new entry to all existing carriers in the affected area. Moreover, the existing operators were granted the right to expropriate any new service offerings of any applicant by merely expressing a willingness to provide such service, and this created an absolute barrier to new entry. In addition, the level of fare was fixed by the commission based on the request from those operators. Changing of rate was not allowed without an entire hearing process before the commission. The statutory requirement was that the rates be reasonable, non-discriminatory and not preferential or prejudicial. This status of regulated monopoly was not changed until deregulation occurred in the taxi industry in 1982.

A regulatory reform measure to deregulate entry and fares of motor carriers, including taxi, private bus and airport limousine, was approved by the Arizona legislature in 1979. This enactment was conditional on ratification by the electorate of a constitutional amendment to remove motor carriers from the definition of public service corporations, thereby nullifying the power of the Corporation Commission to regulate them. This proposition was passed in November 1980, and took effect on July 1982. In consequence, the only requirement to enter the market after removing institutional constraints has been capital requirement. However, some regulations were re-imposed soon after deregulation, e.g.. access to the airport was restricted to one-fourth of all taxis.

3.1.3. San Diego.

San Diego had also limited taxi licences with a population based ratio. In 1979, this policy was revised such that licences were issued by the Paratransit Office at a predetermined rate of 15 per month. These new licences were available to independent operators as well as taxi companies. Even a company could obtain only one new licence at a time, and then had to return to the end of the waiting list before receiving another one several months later. In addition, the standard fare rate was altered to rates by type of service. Maximum rates were to be determined by the city council, although it later removed this restriction. Prior to these regulatory changes, San Diego had a waiting list of 30 applications for taxicab licences. Thirty of these applications were by the existing companies and the remainders were predominantly by independent operators. After opening entry, the number of taxis increased considerably, rushing to the airport. As a result, more rate modifications were made in 1980, which allowed customer bargaining and limited airport taxi rates to a range of plus or minus 20% of the average of all city taxi rates.

However, as like Seattle. San Diego has reimposed entry restrictions and limitation on the maximum fare rate in mid 1980’s, due to various side effects of deregulation, such as continual turnover of small operators in the deregulated industry.

3.1.3.3. Seattle (King County).

The number of taxicab licences was regulated based on a population ratio both in the City of Seattle (1:2000) and in the King County (1:4400), to which the city of Seattle belongs. In addition, after the Port of Seattle (airport) contracted with a taxi company for exclusive taxi service for airline passengers in early 1970’s, the airport independently licensed and enforced taxicabs based on a contract with the County. There were approximately 350 licensed taxis in Seattle in 1972, exceeding the maximum number of 250 allowed under the entry population ratio, which resulted from the ‘temporary’ licences issued to handle the attendees to the 1962 World’s Fair. In addition to this, there were 68 taxis licensed by King County, and 63 taxis licensed by the Port of Seattle. Fixed level of fares were determined by the City Council based on the request from the industry after examining the previous rate increase, ridership and corresponding revenues declined. Besides, further regulations

were imposed on the meter inspections, vehicle inspections and occasional consumer complaints.

Then, in 1979, the Seattle City Council adopted legislation which eliminated the population ratio as an entry limitation for taxicab licences. Thus, any applicant could obtain a licence if he/she met the licensing requirements, i.e., application fee, insurance, inspected and approved vehicle and taximeter, approved name and color scheme, and approved ownership. At the same time, control on the fare was also removed, so that fares could be set by individual taxi operator only by filing with the City as long as the rate followed the prescribed form and was reflected on the taximeter. The County Council also undertook the deregulation one year later (1980).

As a result of deregulation. the number of licences grew and the rate variables were plentiful. At the same time, however, many problems concerning the level of service occurred, such as rate gouging, short haul refusals, discourteous treatment of passengers, fights at ranks and airport, etc. Some attempts were conducted to solve such problems during 1983-1984, including creation of a short haul line at the airport, iatroduction of a rate ceiling (maximum limit) based on the median rate filed, creation of a Taxi Industry Liaison Group (TILG) to increase and provide industry feedback. and a proposal of zone rate for the trip from the airport to downtown Seattle.

At the end, however, the County Council concluded in the late 1984 that deregulation was a failure, and rewrote the proposed ordinance by reinstating an ordained entry restriction and fare control. Though the City did not end deregulation, taxi deregulation over entry and fares has been no more substantial since 1985 due to the introduction of maximum limit on fares and the impact of the County Council’s restriction on licensing.

3.2 UNITED KINGDOM

3.2.1 Outline of the Taxi Industry

England is one of the countries having very long history of taxicab, with Hackney Carriage operated as early as in 16-17th century. Hackney carriage licensing began in London in 1635, and it culminated in the London Hackney Carriage Act of 1831, through evolving over the next two centuries thereafter. However. the birth of modern regulatory practice is reckoned to be the Town Police Clauses Act of 1847, under which various permissive powers were granted to local Commissioners (and later the relevant local authorities).

The Act not only granted local authorities discretion to restrict the number of hackney carriages, and but also established the essentials of the taxi licensing system which still apply, governing issues such as the establishment of taxi ranks, regulating what taxis and drivers should look like, the regulation of fares for time and distance, and regulating the physical/mechanical characteristics of taxis. In practice, however, the feature of taxi licensing in London is quite different from that in the rest of England, and although the basic law outside London is uniform, the local authorities have a great deal of discretion in administering it, which resumed in great differences from area to area.

On the other hand, private hire cars, known as ‘minicabs’, were officially recognized by the Local Government (Miscellaneous Provisions) Act of 1976. They should be operated only by prior booking by telephone or at offices, while taxicabs are operated at ranks or in the street by cruising. There were 16,500 taxis in London, and some 30,000 in the rest of England in 1992, while some 100,000 private hire cars in the whole England, among which over 40,000 in London although they were not licensed by London metropolitan authority. The proportion of taxicabs operated by the licence-holder, namely, self-employed owner-drivers, is about 60% of the taxi fleet in London, and higher elsewhere.

Finally, there are over 300 licensing authorities in England, namely, the Public Carriage Office which is a department of the Metropolitan Police for the whole of London, and district (or metropolitan) councils elsewhere. As for the whole UK, while Wales has the same taxi licensing system as England, taxis are licensed under different legislation in Scotland and the Northern Ireland

3.2.2 Regulations

3.2.2.1 Entry Regulation.

The number of licences was generally controlled in most areas of England except London until 1985. As a result, the licence plate had a value as high as £30,000 or more, so that a new person could enter the taxi business if he buy a licence plate from one of the existing licence-holders at such a high price. This was because taxicab licence has been clearly permissible to be sold since 1947 in England.

In London, however, there has been no quantity control on taxis, so that taxi driver licences are issued to all applicants who pass the knowledge examination In addition, every qualifying vehicle is licensed if it is presented to the licensing authority, no matter how many have been licensed before. As a result, there has been no value in a taxi plate in London. However, the strictness of knowledge examinations, which usually takes 2 or 3 years to pass, plays a role of entry barrier in London taxicab market. Beesley (1973) estimated this entry barrier as the capital costs of London taxicab, which amounted some £2,000 and was similar with the average licence value in other areas in the early 1970’s.

On the contrary, there is no restriction on the number of private hire vehicles where they are licensed. According to the Local Government Act 1976, operators were required to be licensed by the relevant district council, whether the firm concerned is single owner-driver or a large operator.

3.2.2.2 Fare Control.

Almost everywhere in Britain, taxi fares are controlled. Controls are imposed by setting a maximum fare that may be charged, though charging less than the prescribed level is very uncommon in practice. In London, the government reviews the fare annually, using a formula based on a range of cab-specific costs and an index of earnings. Elsewhere in England, local authorities fix the level of fares. Then, the fares are generally lower in the North than in the South. It is required in most areas to install a taximeter in the taxicab. On the other hand, the fares of private hire vehicles are never controlled, because local authorities were not granted with a power to set fares for them by the Local Government Act of 1976.

3.2.2.3 Quality Regulation.

Throughout England, the licensing authority is required to satisfy itself that an applicant for a taxi driver licence is of good character, and criminal records can be checked. There are two categories of 1icences in London, namely, Green and Yellow Badge Drivers. Green Badge Drivers (20,000 in 1996) are licensed to drive in all of London, whereas Yellow Badge Drivers (1,800 in 1996) are restricted to drive in suburban areas. Licences can be revoked in the case of certain offences, particularly those which might endanger the safety of the passenger, whether through driving offences or crimes of violence or sexual assault. Where there is licensing of private hire cars, the regulations on the drivers are very similar. As like the case of London, many licensing authorities require some evidence that a taxi driver has a knowledge of the area in which he/she will ply for his trade, though it would not be so strict as in London. Whereas, private hire car drivers are rarely required to have any particular knowledge, since they can consult a map in advance when being pre-booked.

Another regulation is imposed on the quality of vehicles, especially for London taxicabs known as ‘black cab’. The London cab has ever since 1934 had to comply with special conditions of fitness such as turning circle and partition between driver’s cab and the part of vehicle in which passengers sit. In addition, wheelchair accessibility has been introduced progressively as a part of those conditions of fitness for the London taxicab. All new taxis put forward for licensing in London were required to be wheelchair accessible from 1989, and all taxis licensed in London must fulfill this requirement by the end of 1999. The same gradual introduction of wheelchair accessibility has taken place in the other major towns and cities in the UK which have traditionally used the black cab. On the other band, where the London conditions of fitness are not prescribed, any saloon car can be used as a taxi, though it is usual to require it to have four doors. Those taxicabs over three years old are subject to an annual test, which is applied to all cars in Britain. Moreover, some authorities require taxicabs to be tested more than once a year, and these regular tests are supplemented by spot checks in many areas including London. The vehicle regulations for private hire cars are broadly similar to those for taxis where they are licensed. A council can not refuse to grant a licence to a private hire vehicle which met the conditions, whereas local authorities have retained a discretion to refuse granting the taxi licence for the purpose of limiting the number of taxis until 1985.

3.2.3 Deregulation

The Transport Act, 1985 allowed for the partial deregulation of entry into the taxi industry in the UK. This took away the absolute discretion in the issue of licences by local authorities. It stipulated that an applicant for a licence could only be refused if there was no significant demand to justify the increase. Since this is more a situation of liberalisation rather than deregulation, the changes in the Act have not resulted in all local authorities removing the restrictions on entry.

Toner (1996) finds that only 28 % of authorities completely removed entry barriers as a result of the Act. Table 3.1 shows that, in 1991, 54 % of authorities still imposed numerical restrictions on entry. Moreover, although there has been a trend towards entry liberalisation more councils are tending to use fare regulation.

Table 3.1 : Growth in Nature and Scope
of Taxi and Hire Car Licencing
1980 1985 1988 1991
No. % No. % No. % No. %
Taxi Licencing 305 82.4 312 84.6 31.6 99.1 292 100
Hire Car Licencing 221 59.9 259 70.2 274 86.4 280 95.9
Entry Restrictions 249 67.5 274 74.3 179 57.2 157 54.0
Fare Regulation 278 75.3 290 78.6 281 88.9 273 93.5
Districts in Sample 369 369 320 292
Source: Toner, Jeremy P. (1996) English experience
of deregulation of the taxi industry, Transport Reviews, Vol.16, No.1.

The Act of 1985 also allowed district councils to introduce shared taxis when 10% of the licence-holders in the district make a written request for than to do so. In that case, the local authority must also designate the authorised places from which the shared taxi scheme operates such as a shared taxi rank. Then a taxi may be used for hire and rewarded at separate fares without thereby becoming a PSV or ceasing to be a taxi. In addition, a taxi can also be shared if passengers or prospective passengers agree to share the vehicle in advance booking. A local authority may set fares for the immediate hiring of taxis when they are shared, but may not do so for those booked in advance at separate fares.

The Act brought another way for taxis to be operated as Public Service Vehicles (PSVs) which provide local services. The holder of a taxi licence may apply to the Traffic Commissioner for a restricted PSV operators. When a taxi is used as a PSV, it is subject to most of the regulations of the Public Passenger Vehicles Act 1981. though operating standards remain the responsibility of the taxi licensing authority, so that those provisions concerned with taxi ranks and fare regulation do not apply to it. A licensed taxi to operate as a special PSV need not be a full-time PSV, however, during the course of its operation as a PSV, it must have at least one stopping place in the area for which it is licensed as a taxi. This means such taxis can have stopping places in other taxi licensing areas, while ordinary taxis can conduct their trade only in the area for which it is licensed.

3.3 SWEDEN

3.3.1 Outline of the Taxi Industry

There were 7.500 taxi companies in Sweden in 1982, and most of them were small companies which had one or two vehicle permits. Only 6% of the companies had more than three taxis. Those taxi companies were forced by legal arrangements to belong to a radio booking centre, playing a role to mediate service. Mansson (1995) found that more or less than 90% of all services were mediated by a centre. In addition, this centre negotiated, as a party, with municipal and county authorities when purchasing transport services for public needs such as for senior citizens, school children and disabled people. More than half of the services provided by taxi were those for the public sector, and the remaining 45% were for business travel and private hire.

The Swedish taxicab industry has been subject to various regulations on entry, fares and services until it deregulated in 1991, although other transport modes were intensively deregulated by the Transport Act of 1963 and that of 1979. During this period, especially by the 1979 Act, a devolution of responsibility for local public transport including taxis was undertaken from state to counties and districts, namely, to the County Transport Authorities (CTAs) and the district councils. At the same time, many buses were replaced by taxis on thinly used routes.

When further deregulation of public transport took place in 1990 by the Transport Policy Act 1989, however, taxis couldn't be exempted from deregulation any more. There were some 1,000 taxis in the whole country immediately before the deregulation.

3.3.2 Regulations before Deregulation

3.3.2.1 Entry Regulation.

The number of taxis was limited within a range to meet the expected demand in an operating area which was usually equivalent to a municipal county, and taxis were restricted their trade inside the operating area they were licensed. In addition, county councils were obliged to designate a traffic plan by estimating the demand for taxi services in order to regulate the number of taxis at each time of the day in each operating area. An applicant had to apply for a licence at the trade department of relevant county council, then the county council decided whether to issue a new licence or not, usually after consulting the incumbent operators.

3.3.2.2 Fare Control.

Taxi fares were uniform throughout the county before deregulation, based on distance above a certain speed and on time below that speed. They were also determined by time of day and number of passengers: In addition to the basic fare, three different extra charges was applied by the number of passengers, namely, tariff I for one passenger, tariff II for two or three passengers and tariff III for more the four passengers. Tariff III was also charged if the trip took place at night (between 7 pm and 6 am) or during Saturday, Sunday or public holidays. The level of fare was centrally decided by the Ministry of Transport (by the National Transport Advisory Council in 1980’s), stating a maximum limit for it. Therefore, the National Taxi Association of Sweden had to negotiate with the relevant authorities if they wanted to raise the fare.

3.3.2.3 Quality Regulation.

As mentioned earlier, every taxi company had to belong to a booking centre which was owned and operated by the taxi companies joined it, being approved by the county council. Such system was believed to make it possible to achieve economies of scale as well as improve profitability for the individual companies. The number of booking centres was limited by law to one in each operating area, which resulted in local monopolies. It was required that the taxi operator as well as driver had to obtain taxi driver’s licence in order to operate/drive a taxi. In addition, in order to conduct a business. the new operator had to take a 5-day’s education course held by the National Taxi Association of Sweden prior to starting it. Besides these. the operating hours of taxicab were strictly regulated to keep a balance between demand and supply.

3.3.3 Deregulation

The Transport Policy Act of 1989 provided the framework for the deregulation of the industry in 1990, suggesting that the best service for the lowest economic cost would be supplied by a deregulated taxicab industry subject to free market forces. Deregulation of the Swedish taxi market was carried out in five steps:

First, barriers controlling entry were removed, so that an operator can have as many taxicabs as desired. This relieved the county councils of their former task of estimating the demand for taxi services in each operating area;

Second, fare controls were removed, so that taxi companies became to be able to set their own fares. However, they were required to inform customers about the fare prior to trips, and taxicabs must be equipped with receipt writing meters;

Third, the requirement for all taxicabs to belong to a radio booking centre was abandoned. At the same time, in order to stimulate competition between centres, publicly owned centres were established in the market as an alternative to the existing privately owned centres;

Fourth, geographically restricted operating areas were eliminated; and

Fifth, the strictly regulated operating hours were removed.

On the contrary, controls on applicants became more rigorous by encompassing trade skills as well as personal and economic suitability. In addition to remaining the licensing system and compulsory education prior to starting a new business, some regulations were reintroduced concerning the qualifications of drivers. Namely, it was required for drivers as well as operators to be assessed whether they are fit and proper persons by means of checking previous criminal offences. Since 1994, drivers have also been required to have a knowledge on the area where they are driving, Besides these, the taxation authorities carried out a number of controls on taxi companies and the radio booking centres for the purpose of dealing with tax fraud which has widely been conducted by taxi operators after deregulation.

3.4 NEW ZEALAND

3.4.1 Introduction

New Zealand, along with Sweden, is a typical country where taxi industry has deregulated totally at once over whole country, in contrast to those cases of USA and UK where taxi deregulation took place at more local level. Before it deregulated in 1989, New Zealand taxicab industry has been strictly regulated by the Ministry of Transport (MOT) over entry into the market, fares and quality. Taxi deregulation has its origins in the land transport reforms of 1983, which resulted from a major review of land transport licensing and regulation began in 1982. Through this review, the monopoly held by New Zealand rail over long-distance freight and passenger services was phased out, allowing road operators to compete over these distances.

The 1982 review also recommended changes to the taxi industry, but the incumbent operators successfully lobbied the government against such changes so that the taxi industry provisions were deleted from the 1983 legislation. However, the 1983 legislation resulted in blurring of the distinction between taxi and other Passenger Service Vehicle (PSV) which was defined as a vehicle used for carrying passengers and/or goods for hire or reward. And the PSV licence was made to be very easy to obtain by the legislation, whereas taxi licence was kept to be difficult to obtain.

Thereafter, in 1987, the Minister for Transport announced a formal review of the taxi industry, and proposals for reform of the industry were released in June 1988 after public discussion. At the end, these proposals were legislated to the Transport Services Licensing Act 1989 (effective 1 November 1989), which removed the quantitative controls over entry and fares from the taxi industry.

There were 2,762 taxicabs nationwide immediately before the regulation in 1989, of which 454 vehicles were operated by 9 taxicab companies in Wellington metropolitan. The populations per licensed taxicab were approximately 640 in Wellington, 870 in Auckland, and 970 in Christchurch, each of which is a metropolitan centre with a population over 300,000.

3.4.2 Regulations before Deregulation

3.4.2.1 Entry Regulation.

First of all, the number of taxi operator licences was controlled primarily by four geographically based Transport Licensing Authorities (TLA), thus, people who applied for an operator licence were required to attend to a public hearing held by the relevant TLA, where the need for and public good of the proposed service were evaluated. In addition, the taxi industry in every town with a population exceeding 20,000 was subject to a triennial review, conducted by the relevant TLA with data and analysis of demand provided by the MOT. Licences could be traded, while only the TLA possessed the right to issue more licences. Additional licences, however, were rarely issued, in fact, the number of taxi licences declined fron 3,245 in 1975 to 2,762 in 1989. As a result, taxi licences traded at prices of approximately NZ$25,000 (£9,500 in 1989 prices), together with taxi purchase in the case of owner-driver. This was the minimum cost which had to be paid to the vendor and annual fees plus incidentals were in addition.

3.4.2.2 Fare Control.

Fares were controlled by the central government, i.e., the Secretary for Transport fixed a fare system for each licensing area, and a taxmeter on which the fixed fare displayed was required to be fitted to every taxicab. There were 78 different fare levels in operation in December 1987, and the taxi organisation were able to apply for a review of the fare level. Fares were set on a cost-plus basis, taking into account running costs, standing costs, wages and a 10% of profit. Taxi organisation normally provided the cost data for the fare reviews, and indications are that the process of review was very subjective. Therefore, a national indexation system for fare setting was introduced in 1986, where all costs, the index and fares were automatically updated every six months.

3.4.2.3 Quality Regulation.

Quality controls were imposed on the standards for vehicles, driver competence and operator performance. Vehicles were required to have a current certificate of fitness, be less than ten years old, and carry a maximum of six passengers. In order to obtain a taxi driver’s licence, drivers had to be at least 20 years

old, needed to have held a driver’s licence for two years, be of good health, and pass written, oral and practical tests including a test of their knowledge of the area Minimum periods of rest were prescribed for drivers and each taxi was required to keep a logbook, while the operator was required to be a member of an approved taxi organisation. Besides these, advertising on taxis was very restricted and multiple hiring was limited to two people at specific pick-up points.

3.4.3 Deregulation

According to the Transport Service Licensing Act 1989, taxis and limousines are defined as Small Passenger Service Vehicles which carry a maximum of 12 passengers, requiring owners of such vehicles to have a passenger service licence. (The existed taxi licences were exchanged to the passenger service licences when the Act went on effect) There is no restriction on the number of passenger service licences issued so that a licence-holder may operate any number of vehicles under the licence. The revised fares should be calibrated on the taximeter and be displayed both inside and outside the taxicab.

On the other hand, quality controls remained and, in certain respects, were strengthened. New operators are required to publish a notice, stating an intention to apply for a licence on an approved newspaper before the application can be processed. Before a licence is issued, each applicant is assessed as to whether he/she is a fit and proper person by means of checking criminal convictions, transport offences and general character of the applicant. Licence-holders are also required to obtain a Certificate of Knowledge, which is issued upon successful completion of a test of knowledge and understanding on the laws and safety requirements for operating a passenger service.

In addition, the licence holder must be a member of an approved taxi organisation which offers a 24 hour/7 day telephone booking service and must maintain a register of complaints. Even though there is no requirement in the Act 1989 for a minimum number of cars before a taxi organisation can be approved, the Transport Licensing Division of the Land Transport Safety Authority (LTSA) have made it a prerequisite that there be more than five cars before approval, at least in metropolitan areas.

Each vehicle must possess a Certificate of Fitness issued by a Testing Station. A taximeter must be installed and must be tested, sealed and certified every six months.

Drivers of small passenger vehicles must also be licensed, and are subject to checks of their criminal record and driving record before a licence is issued. In addition, they are required to pass a map reading test and must hold a first aid certificate. Multiple hiring is permitted not being restricted to particular taxi ranks, however, it must be agreed by the first rider to share the vehicle with subsequent riders. Both taxi operators and drivers are subject to a demerit point system where a licence-holder will be disqualified for five years, should 200 or more demerit points be incurred within two years.

3.5 JAPAN

3.5.1 Outline of the Taxi Industry

The origin of taxi in Japan is the ‘Sedan Chair’ which had been used as a transport mode from the 17th century and replaced by the ‘Rickshaw’ in 1870. The rickshaw had been widely used and operated as business, culminating in 1902 with 43,273 rickshaw in Tokyo, until 1938 when it disappeared entirely. Meanwhile, taxicab appeared in the 1910’s with a system of fleet (company taxi), and its number increased to 8,000 nationwide by 1945. The Japanese taxi industry grew steadily after the end of the Second World War until the mid of 1970’s, with rapid growth of the individual taxis which were introduced in 1959 for the purpose of granting an incentive to the company taxi drivers. However, the number of the company taxi operators has decreased and that of the individual taxis has remained at almost same level since 1975, as shown in the table 3.2.

Such reduction in the number of the company taxi operators was caused not by closing of business, but by merger or amalgamation of companies. Total of 49,955 taxis were operated in Tokyo in March 1996, among which 31,403 vehicles were company taxis operated by 231 companies and 18,552 vehicles were individual taxis. The operating pattern of taxis differs according to the size of cities: The proportion of taxis operated by cruising is more or less than 80% in the major cities and around 40% nationwide, while that by telephone is 5.3% in Tokyo and 37.1% nationwide. (The rests are operated by standing at the ranks)

Table 3.2 : Changes in the Japanese Taxi Industry
Year Company Taxis Individual
Taxis
Total
No. of
Companies
No. of
Vehicles
Mean
Fleet Sizes
Operators Vehicles
1965 6,394 140,684 22.0 10,352 16,756 151,046
1970 6,966 193,843 27.8 23,926 30,892 217,774
1975 7,566 196,917 26.0 46,431 53,997 243,348
1980 7,328 203,484 27.8 47,110 54,438 250,594
1985 7,237 205,564 28.4 47,077 54,314 252,641
1990 7,204 212,449 29.5 47,140 54,344 259,589
1995 7,030 209,607 29.8 46,377 53,407 255,984
Source: Research Institution of Hire Tax Problem,
A Yearbook of Hire Taxi

3.5.2.1 Entry Regulation. The history of regulation on taxis in Japan is as old as that in the UK, with entry regulation on the sedan chair during 1674-1726, and with that on the rickshaw from its appearance in 1870. However, more comprehensive regulation was established by the enactment of the Automobile Transport Business Act in 1930, which formed the licensing system in the whole transport industry including taxis. The framework of regulation has been maintained after the end of the Second World War by the enactment of the Road Transport Act in 1947 and its amendment in 1951, which regulates the standards and procedure of taxi licensing. In addition, the market entry has been restricted by means of keeping a balance between demand and supply, which was introduced in 1955 in order to tackle the excessive supply of taxis caused by the temporary depression of economy in 1950s.

According to the regulation, new licence can be issued in an operating area (there have been 2,317 operating areas nationwide until 1994) by the local authority governing it, when the supply is short compared to the demand or when there are public needs to do so. In order to become a new operator of taxi company in Tokyo, the applicant must meet several requirements such as the minimum fleet of 60 vehicles, appropriate facilities (e.g. garage, operating office, rest room, etc.) and financial ability. Moreover, he must employ sufficient number of licensed drivers and has ability of compensation for traffic accident.

While the applicant for an individual taxi licence must meet such requirements as working experience as a professional driver for more than ten years without being punished by offending relevant laws and ordinances, financial ability to operate a business and to compensate for accidents, and possession of an appropriate garage. New licence has been given to the person who passed the exams on area knowledge and relevant laws and ordinances among those applicants qualified. A series of these strict standards for licensing played a role to restrict entry into the individual taxi market as well as company taxi market in Japan.

3.5.2.2 Fare Control.

Fare system has also been controlled by the authority since the enactment of the Road Transport Act 1947, which regulates that the level of fare should be fixed by the authority considering not only the operating costs including appropriate profits for the operators, but also the passenger’s ability to pay it. Furthermore, it regulates that the level and structure of fare should be applied equally to any sort of passenger, and should not provoke unfair competition among the operators. Based on this regulation, there have been 77 different fare blocks nationwide, where the level and structure of fares are set by each local authority considering the average costs of efficient operator in the block.

3.5.2.3 Quality Regulation.

It was around 1958 when the Japanese economy was about to enter its high growth era, and it resulted in serious deterioration of safety and service level in taxis, which was called as 'Kamikaze (cowboy or recklessly driven) taxis'. The most remarkable management to deal with such problems might be the enactment of the Emergency Measures for Modernising Taxi Industry Act in 1970, followed by the establishment of the Tokyo Center for Modernising Taxis in 1971. The centre has conducted self-enforcement of regulations on the service level as well as ordinary guide and education for the taxi drivers with introduction of registration system of taxi drivers. In order to become a taxi driver in Tokyo, he/she must register at the centre after passing the area knowledge exam, among those who are older than 21 years and have driven for more than 3 years with driving licence. And the operator should educate newly employed driver for 5 days before arranging him/her to drive a taxi. Besides these, a regulation on the maximum driving distance has been applied by the Road Transport Act, e.g., 365 km per day in Tokyo, for the purpose of preventing overwork by drivers. Working conditions of drivers have also been regulated to ensure safety in addition to the Labour Law, such as working hours and rest period.

On the other hand, as mentioned earlier, an applicant for operator should meet several requirements which are mainly related to the ability of operating business, e.g., minimum capital and facilities. Especially, it has been regulated that the applicant should ensure qualified managers responsible for vehicle safety and arrangement.

3.5.3 Deregulation

There has been demand to relax the regulations in the taxi industry since 1960’s in Japan, however, taxi deregulation was not propelled substantially until the government commenced wide range of deregulation in the light of administrative reform in 1990’s. The Consultation Committee of Transport Policy released a report titled 'Features of taxi industry in the future’ in 1993, which established a principle of taxi deregulation, namely, “gradual ease of economic regulation, enrichment of social regulation”. Moreover, the committee suggested to diversify the fare system instead of the conventional 'one district, one fare system’, and to introduce more flexible measures for keeping a balance between demand and supply.

Based on this suggestion, the measure to control fares has relaxed since 1993 allowing different level of fare after examining the request from individual operators. As a result, various level of fare has been introduced in 35 fare blocks including Osaka, Nagoya and Kyoto, from total of 77 blocks until March of 1996. Moreover, a zone fare system, which allow operators to adjust fare level arbitrarily within a range of 10% of the maximum fare determined by the authority, has introduced since 1997. At the same time, the operators has been allowed to change the fare system by applying different distance for the basic fare.

In order to relax the control for keeping a balance between demand and supply, it has been allowed to the incumbents to increase or reduce the number of vehicles within 5% of the existing ones, since 1993. As a result, about 1,500 taxis increased and 1,400 night taxis, called Blue-line Taxi, were introduced in Tokyo during 1993-1996. Besides this, the number of operating areas reduced from 2,317 to 1,911 during 1994-1996 by merging adjacent areas, and the number of routes where taxis are allowed to share-ride increased from 102 to 161 during the same period.

In March of 1997, based on a report released by the Administrative Reform Committee, Japanese government decided further deregulation as follows, which hints the direction of taxi deregulation in the future:

(1) Deregulate the control for keeping a balance between demand and supply further to abolish it in a few years

(2) Allow to set the level of fare below the range (10% of upper limit), and move away the upper limit of fare in the future

(3) Reduce the operating area by 50% within 3 years (less than 1,000 nationwide)

(4) Reduce the minimum number of fleets for the operator licence to less than 10 vehicles within 1997

3.6 SOUTH KOREA

3.6.1 Outline of the Taxi Industry

Korean Taxi Industry has started its business in 1912, followed an establishment of the first taxi company in 1919. The industry has developed thereafter, especially during the Korean war (1950-1953), so that the number of vehicles increased up to 1,745 at the end of the war. Company owned taxis had been the only type of taxis until individual owned taxis were introduced in 1965 for the longest seniority among the company taxi drivers. Therefore, Korean taxi industry consists of two types of taxis, namely company taxis and individual taxis. The industry grew very rapidly in the 1980s, not only in the size of the industry, but also in its operating system. As a result, in March 1997, there were 215,787 vehicles with 286,060 drivers nationwide, of which 87,403 company taxis owned by 1,814 companies and 128,384 individual taxis.

Table 3.3 : Status of Taxi Industry in South Korea (March 1997)
Company Taxis Individual
Taxis
Total
No. of
Companies
No. of
Vehicles
No. of
Drivers
Mean
Fleet Sizes
Vehicles Drivers
Seoul 260 22,050 47,223 84.8 46,468 68,518 93,691
Nationwide 1,814 87,403 157,676 48.2 128,384 215,787 286,060
Source: Kang, Choong-Ho (1997) A Study on Entry Regulation of Taxi Industry in Korea,
Unpublished MSc thesis (University of Seoul)

As indicated in the table 3.3, more than 30% of total taxis are operated in Seoul, and about 65% of them are in the 6 major cities including Seoul. The populations per licenced taxicab are about 160 in Seoul, which means the number of taxis is relatively high compared to other cities such as New York (624), London (400) and Tokyo (221). The market share of taxicabs has been considerably high with more or less 10% in Seoul and 30% nationwide, thus they have played an important role in the whole transport system. However, its market since as well as its importance has reduced considerably since the expansion of the underground system in Seoul and Pusan in the 1990s. The major part of taxis are operated by cruising, even though a small number of taxis are operated by call system in Seoul.

3.6.2 Regulations

3.6.2.1 Entry Regulation. Market entry has strongly been regulated in the Korean Taxi industry from the beginning of it. It has been undertaken mainly through the licensing system which was established by the Automobile Transport Business Act 1961 and several relevant administrative measures thereafter. According to the Act, one must obtain the operator licence in order to run a taxi business as a fleet owner, which is issued by the local authority after examining whether the applicant meet or not the requirements such as financial ability (minimum capital), minimum fleet size (20-50 vehicles), facility standard (e.g. appropriate garage, car washer, training centre, etc.).

Each local authority can issue new operator licence to the applicant considering the need of promoting competition and the operating situation in the district, because there has been no limitation on the number of licences in principle. However, any authority has rarely issued a new licence to enter into the existing company taxi market since 1980s, while allowing the incumbents to increase a number of vehicles in order to meet increasing demand. As a result, the industry grew rapidly in its size as mentioned above. On the other hand, the individual taxi licences were issued by a lottery system among those applicants who had worked as a company taxi driver for more than fifteen years without causing any accident, because the number of licence was strictly limited. After the requirement for applicant was relaxed along with a removal of limitation on number in the early 1980s, the number of individual licences issued newly has increased drastically thereafter, as can be seen in the table 3.4.

Table 3.4: Growth in Scope of Taxi Licencing during 1992-1994
1992
Total
1993 1994
Company T Individual T Company T Individual T
Seoul 4,441 0 3,000 0 2,875
Nationwide 14,255 1,909 6,747 549 6,881
Source: Kang (1997)

A licence has no limitation on period during which it can be operated, unless it is revoked or temporarily suspended by the authorities due to serious offence of the relevant laws or licensing conditions. Both types of taxicab licences should be operated in a limited operating area which is usually consistent with an administrative district, and they should be operated by only the licence owners. In other words, leasing a licence to others is prohibited. On the contrary, it is allowed by the authority that a taxi licence can be sold to other person who fit the standards for licencing, and it also is transferable to one’s spouse or descendant when the original licence holder can not continue his business due to death or disease.

These characteristics of licensing system have resulted in high values of licence. which is one of the most delicate issues in the Korean taxicab industry. Currently, an individual taxi licence cost more or less £25,000 (when assuming £1 = 2,000 Korean Won), while a licenced company taxi cost about £7,500. In addition, an exit regulation is imposed on the industry by enforcing not to stop one’s business without permission by the authority.

3.6.2.2 Fare Control.

Fares of taxicab have been strictly controlled by the central government - the Ministry of Transport - until the regulation was relaxed in the early 1990s. Both the level and structure of fares were set entirely by the government, based on the request for increase or adjustment from operators. As results, the same level and structure of fares have been applied on those all taxis in the whole country, and the level has been restricted by applying relatively lower increasing rate for long time compared to other public transport mode such as bus or underground. However, the fare of deluxe taxi is higher than general type of taxis, because the service level of such deluxe taxi may be better than that of others.

3.6.2.3 Quality Regulation.

Various quality regulations have been imposed on the vehicles and drivers as well as operators, in order to ensure high level of service and safety. Concerning the vehicle, the size of vehicle is regulated according to its engine size classified into three types, namely, small (smaller than 1,500cc), medium (1,500cc -2,000cc) and deluxe (bigger than 2,000cc). The age of vehicles is limited within more or less 5 years, which varies according to the type of vehicles and licences, for the purpose of ensuring safety and comfort. This age limitation, however, tends to be relaxed as a part of deregulatory reforms.

In the past, anyone over twenty one years old who has ordinary driving licence could work as a taxi driver only if he/she was employed by a company and complete the training course for a week. However, since the taxi driver qualifying system was introduced in 1992, one who want to become a taxi driver must obtain a qualification by passing a test on the relevant laws and area knowledge. In addition, several regulations have been imposed on the taxi drivers to ensure high level of service, such as an obligation not to refuse any request for hiring, prohibition of accepting extra charge exceeding the fare indicated on the taximeter, etc.

The most important regulation on the owner of taxi company may be the prohibition of any kind of leasing, as mentioned earlier. This prohibition was introduce by the 1961 Act. because such a leasing system resulted in many troubles in the licensing system as well as service deterioration during the previous period when most taxis were operated by leasing. Nevertheless. leasing system has not totally removed yet, so that it has been the most serious issue in the Korean taxi industry so far, along with the conflicts surrounding the notorious commission-based wage system for drivers. As a result, an additional regulation, requested by the union to root out both leasing and commission system, was legislated in 1997, which enforce the drivers as well as the operators to implement a new managerial system of receipts.

There was another significant regulation concerning the operation of taxis, namely, a compulsory fixed rest day for vehicles, though the period of rest differs according to the operating area and to the type of licences. This regulation was introduced at the early 1980s for the purpose of reducing congestion and promoting safety of vehicle. According to this regulation, company taxis must have rest usually every 6 to 10 days, while individual taxis must rest every 3 to 6 days. However, this regulation has also been relaxed or removed in several districts as a measure for taxi deregulation.

3.6.3 Deregulation

Since 1993, Korean government has strongly tried to remove or relax the existed regulations in industries. Consequently, a lot of regulations in the taxi industry have also been relaxed or deregulated immediately or put in the process of deregulation.

Firstly, deregulation of market entry was partially undertaken in the licensing system and the range of operating area. The requirement standards for licensing was relaxed in 1993 by abolishing the regulation of the minimum capital required to found a new taxi company. ( £50,000 - £150.000 ) However, this treat did not really mean to ensure easy market entry, but just aimed to remove a regulation which has no effectiveness any more. The evidence is that there has been no new entrant into the company taxi market despite of such deregulation. At the same time, the minimum fleet size was relaxed by allowing wide exception. In addition, each operating area was allowed to merge with adjacent districts in 1995, and furthermore in 1997.

Secondly, it seems that the control on fare was substantially changed by a trend of deregulation. A power of setting fares was devolved from the central government to each local government in 1994, which enabled easy adjustment of fares when needed. As a result, fare system was slightly differentiated in its structure and level between urban areas and country areas, reflecting their own conditions.

Finally, a series of deregulation or relaxation has been pushed onto the quality regulations including a limitation on the used age of vehicles, a compulsory fixed rest for vehicles, and conditions for transferring or leasing the individual taxi licence. The used age of vehicles was limited to four years for the company taxis and to five and half years for the individual taxis until 1996, however it was relaxed by allowing local authorities to lengthen the age with a range of less than one year. There have been various periods of compulsory rest for vehicles even before the government tried to abolish the regulation in 1993, which ended up just to relax the level of enforcement.

As mentioned earlier, taxi licence is transferable and can be sold to others under certain conditions. Then, the government relaxed the conditions for individual operators in 1993 by including another case that the owner is detained due to a serious traffic accident. On the other hand, it may be a remarkable thing that prohibition of leasing and commission wage system was not relaxed, but strengthened in an era of deregulation, by introducing a new managerial system of the receipts.

3.7 OTHER COUNTRIES

3.7.1 Australia (Adelaide)

The Australian taxi industry works separately in each state, namely, New South Wales, Victoria, Queensland, South Australia and Western Australia. Thus, the feature of taxis differs from state to state, in regulations over licensing, fares, and quality. The current status of the taxi industry in six state capitals are summarised in the table 3.5 in terms of the number of taxis, population per taxi, price of taxi licence and fares, etc.

Table 3.5: Taxis in Six State Capitals in Australia (March 1997)
State --»
(City) --»
NSW
(Sydney)
Victoria
(Melbourne)
Queensland
(Brisbane)
South
Australia
(Adelaide)
Western
Australia
(Perth)
Tasmania
(Hobart)
Total Taxis 4,293 3,101 1,497 1,011 1,026 218
Population
per taxi
871 1,042 1,012 1,110 1,211 889
Taxi Licence
Holders
11,000
(NSW)
c.1,800 (na) 1,551 1,551 122
Drivers 24,000 14,400 (na) 4,419 c.3,500 (na)
Price of Plate $258,447 $200,210 $185,000 $151,900 $190,000 $92,000
Weighted Fare
(7km journey)
$11.13 $9.73 $9.33 $9.00 $9.38 $9.52

Source: Radbone, Ian (1998a) Looking at Adelaide’s Taxi Industry,
Road & Transport Research, VoL7, No.2, pp.52-59.

In South Australia, according to Radbone (1998a), taxi industry was regulated by state government since 1956 when a regulating power was taken over from local government, and the Metropolitan Taxi-Cab Board (MTCB) was the responsible authority. There was no new taxi licence issued by the MTCB since then until 1991 when the Labour government adopted a policy of issuing fifteen new licences each year from the next year. At the same time, the government also abolished the numerical limitation on the number of hire cars (which were regulated to provide only limousine services) in Adelaide, the capital city of South Australia.

A wider regulatory reform was undertaken by a Liberal government through the Passenger Transport Act 1994, which established a Passenger Transport Board to regulate all land-based commercial passenger transport services. The Act provides a system of accreditation for the operators, the drivers and the providers of centralised booking services. However, this accreditation is separate from the licence required to own a taxi, namely, it is neither transferable to others nor limited in its number, while the licence can be bought and sold on the open market, with limitation on its numbers. In addition, under the Act hire cars are able to provide the same service as a taxi service, subject to several limitations such as prohibition of having a taximeter and plying for hire in street, etc.

There has also occurred significant deregulation of taxis in terms of leasing system. According to Radbone (1998b), leasing system has been prohibited since 1955 when the Adelaide City Council prohibited it by passing a motion that a licence would be granted only to such a person or company whose principal occupation was taxi operating. However, the restrictions on leasing were eliminated during the 1980’s in four stages, each at two yearly intervals as allows:

(1) From 1985, sick or disabled taxi operators and surviving spouses who were not qualified or available to operate a taxi personally were allowed to lease the licence if the plate had been owned for at least 15 years and if the owner had reached the age of sixty years.

(2) In 1987, the general age restriction was dropped and only ten years’ continuous service was required.

(3) In 1989, the number of years continuous service was reduced to five years.

(4) In June 1991, all restrictions were removed as part of a package of deregulatory measures. At the same time, the requirement that taxi owners had to have the taxi industry as their principal or sole occupation was abandoned.

3.7.2 Ireland

3.7.2.1 Outline of the Taxi Industry.

The Irish taxi and hackney industry was organised by the Road Traffic Act in 1961, which empowers the Minister for the Environment to make regulations in relation to control and operation of public service vehicles, such as licensing of public service vehicles and drivers, setting of maximum fares, etc. The Road Traffic (Construction, Equipment and Use) Regulations (1963) also include special provisions relating to public service vehicles, including distinction between taxis and private hire vehicles called hackney. While taxis are entitled to ply for hire in public places and are subject to a maximum fare structure, hackney are not allowed to do so. Furthermore, the right of using telephonic or radio communication has been granted to taxis only since 1983, whereas, hackney could not make use them except for those engaged in wedding and funeral services.

The number of licensed taxis in Dublin fluctuated along a general upward trend during the 1970s as demand for taxi services increased. With the introduction of entry controls in 1978, this growth halted and the number of licences remained at 1,835 until 1992 when it increased by 139, as can be seen in the table 3.6.

Table 3.6 : Taxi Licences in Dublin since 1970
Year --» 1970 1971 1972 1973 1974 1975 1978
-1992
1992
-1997
Taxis --» 1,389 1,232 1,395 1,437 1,561 1,664 1,835 1,974
Source: Oscar Faber (1997).

The restrictions on entry into the taxi market have increased the scarcity values of taxi licences, which may be traded privately and which are currently bought and sold at up to £80,000. Whereas, hackney licences do not have excessive licence purchase costs, because they have been more freely available and are not nominally transferable.

The exact number of hackney 1icences is not available, but their number has increased dramatically in Dublin from a figure of about 800 in 1992 to over 3,000 in 1997. Most hackney drivers are affiliated to a hackney company which takes and allocates bookings, and there are approximately 70 such companies operating in the Dublin area.

While there are some operators with multiple licences, the majority bulk of taxi operators are in possession of one licence only. Many single licence holders as well as holders of multiple licences use drivers to operate their vehicles. There are approximately 1,000 licensed drivers and most taxis are worked up to twenty hours in a day with two or more drivers per each taxi

3.7.2.2 Regulations. As mentioned previously, the Dublin taxi industry has heavily been regulated as in many other cities. There are 16 taximeter areas nationwide and the number of licences in each area is decided by the relevant local authority. In Dublin, the numbers are decided by Dublin Corporation on its own behalf and on behalf of the other local authorities. Licences should be renewed every three years and can be transfered to others with transfer fee of £3,000. Restriction on the number of taxi licences was introduced in 1978, thereby new entrant can only enter the market if he replaced the existed supplier.

On the other hand, a more liberal policy has been allowed with regard to hackneys. Until 1995, licensing of hackneys was undertaken by the Carriage Office without restrictions on entry or price, however, this function was transferred to Dublin Corporation in 1995. Since then, restriction on entry to the hackney trade has taken a form of moratorium on the issue of new licences, which has been applied from time to time. Most recently, for example, a moratorium was in place between November 1995 and February 1996, and again since 1997 to coincide with the current review. However, relatively easy access to the market compared to taxis is evidenced in the rapid increase in licences in the 1990s and particularly during 1996.

Fares are also strictly controlled This is done by specifying the fare per distance travelled, the fare per minute waiting, and other fixed charges such as that for baggage, unsociable hours etc. A legislation allowing for fare controls was the 1961 Act, and the task of regulating prices was transferred from the Department of the Environment to the relevant local authorities in September 1995.

Quality standards are applied to drivers as well as vehicles: Vehicles must be approved both in terms of size and seat capacity and in terms of their safety and road-worthiness. Drivers must possess a Public Service Vehicle (PSV) licence which requires a once-off test of driving skills and a written test on knowledge of the city. These standards were introduced at a national level by the 1961 legislation and, for Dublin, are enforced by the Carriage Office (the Garda Commissioner). In addition, every taxi driver is required to be available to work 40 hours per week and may not be engaged in another occupation which might impair the efficiency of the driver.

Another feature concerning taxi regulation in Dublin is the very segmented structure of overall system of regulation. Price and entry are regulated by four different authorities, each of which must vote on any important measure, while quality standards are determined by the Carriage Office. In consequence, the effective regulation and management of the market would require both highly sophisticated co-ordination between the different agencies and unity of purpose among them. However, there appears to be no formal link between regulations on taxi market, on public transport and on infrastructure, hence, present system does not permit proper management of taxi service in Dublin.

3.7.2.3 Deregulation.

The restriction on the number of taxis was relaxed in 1991 by issuing 100 new licences and again in 1992 by issuing 50 wheelchair accessible licences, on foot of a review of the trade. In 1995, some powers of regulating taxi industry were devolved to local authorities, such as declaring taximeter areas, taxi and hackney licensing, detemining the number of taxi licences and the fare structures of taxis, and so on.

Recently, several studies were conducted and published in succession which suggested deregulation of taxi industry in Dublin. A paper by Trinity College economists was published at the end of 1997, which argued that deregulation would double taxi numbers in the city and users had overpaid due to higher fares than they would in a free market. This study was followed by a report from the Dublin Chamber of Commerce, which called for deregulation over three years by removing the limits on numbers and by replacing the current separate taxi and hackney permits with a single car-for-hire licensing system. Another report by British consultants recommended to issue 200 new licences for taxis with wheelchair access. Moreover, the report suggested a complete deregulation of taxi and hackney market.

In consequence, at the beginning of 1998, Dublin City Council decided to issue 200 new wheelchair accessible taxi licences and to increase fares which proposed by a joint taxi and hackney council committee based on those reports. These licences are being issued in 1998 at a cost of 15,000 each, which is much lower price than current trade price of 80,000. As a result, it is anticipated that there will be approximately 2,374 taxis licensed to operate in the Dublin taximeter area by the end of 1998.

3.7.3 The Netherlands

Taxicab industry has been tightly regulated by a body of rules determining the number of companies, the size of the vehicle fleet and the number of drivers to be allowed to operate taxis in a province. Licences have been issued by local authorities with different criteria from region to region, and the fares charged by taxi companies have also been determined at government level. However, in 1994, a study conducted by a joint working group made up of representatives of central government, provinces and municipalities concluded that the current system of regulating taxi trade was more concerning with protecting the self-interest of taxi operators than providing services to customers. The study also concluded that high fares were the main barrier to more frequent use of taxis, and that legislation entrenched the divide between taxis and other forms of public transport. Another problem was noted by the study that the legislation has allowed unsupervised companies to profit by leasing taxi-operating permits at very high prices. Based on that study, the Minister of Transport recommended wide range of legislative changes as follows:

(1) To establish a free market by abolishing the limits on the number of licences, as this system was a method of self-protection for existing companies and a formidable barrier to new enrants, maintaining high prices at the expense of passengers.

(2) To abolish regional differentiation regarding tariffs and let the market decide the level of fares on a supply-and-demand basis in tandem with quality of service.

(3) To simplify the administrative procedures for taxi companies and drivers. Drivers would be approved on the basis of a medical test, possession of a valid driving licence and identity card and a ‘declaration of good behaviour’. They would then been issued with a personalised badge id identifying them as authorised drivers.

(4) To abolish the present regional boundaries limiting the areas of operation of taxis to make a single operating area for all taxis across whole country.

As a result, in early 1997, the Dutch government decided to deregulate taxi industry on a step-by-step basis. According to an official newsletter by Ministry of Transport, a system of national requirements will be introduced for company licences, taxi-drivers’ licences and vehicle inspection certificates from 1998. As from the year 2000, however, these rules will be relaxed so as to coordinate demand and supply, and during the period between 2000 and 2002 companies will qualify for a taxi licence if they comply with a standardised entry norm. In addition, a national maximum tariff will apply from 2000, under which companies will be allowed to determine their own taxi fares to be charged. Moreover, from 2000, the current operating areas will be unified throughout the whole country and the current licensing and tariff system will be abolished, remaining only the quality requirements to be applied.


CHAPTER FOUR
EFFECTS OF DEREGULATION

It is difficult to make direct comparisons between countries on the impact of deregulation, because the situation obtaining prior to deregulation was different in those countries. If a country had less number of taxis before deregulation, the impact of deregulation in that country may be greater than a country where there was already the optimum number of taxis before deregulation. And if regulations on fares or quality were relatively loose in a country before deregulation, the changes caused by deregulation in that country may be less than other countries where those regulations were very strict. Therefore, differences in the inherent or existed conditions should be taken into account when the results of deregulation are compared each other.

4.1 RESULTS FROM THE EXPERIENCE OF USA

4.1.1 Entry and Fare Deregulation in Several Cities

The greatest impact of deregulation was the increase in the number of taxis available. According to Teal et al (1987), the number of licensed taxicabs increased in all cities where taxi industry deregulated, e.g. by 33 % in Seattle, by 83% in Phoenix and by 127 % in San Diego. Except in Phoenix, where two large fleets have been established since deregulation, most new entrants have been individual owner operators or small companies less than 25 vehicles. It was verified that there occurred substantial turnover among these small companies and independent drivers, whereas little turnover among large new companies and no exit by a large incumbent company since deregulation. For instance, 40% of independent cabs apparently left the industry in the airport market in Phoenix during the 15 month period after deregulation, and one-third of all taxi operators not affiliated to the two large fleets applied to transfer licences to leave the industry in San Diego within 18 months of the entry moratorium.

Teal et al notes that one of the most surprising results was that the expected price competition did not materialise, except in some isolated cases. Their results show that over a thirteen year period the mean fare increased by 145 % in deregulated cities compared to 133 % in regulated cities. In cases where firms have lowered fares in comparison to their competitors, it does not appear to have had any significant impact on their market share. One particular problem was at airports where supply was so great as to lead to customer waiting times of almost zero, which caused dramatic increases in price. Teal et al offer some explanations for this lack of price competition: monopoly profits under regulation were not as high as expected, high entry cost for radio equipment and requirement for minimum fleet present an entry barrier to new fleets, and consumers’ insufficient information on the alternative lower service provision.

The increase in supply had not led to any significant increase in demand and this therefore has led to a fall in productivity, namely, occupancy levels. For example, daily trips per taxi have dropped by at least one third in four of the deregulated cities. This may be a further explanation for the rise in fares. In some cases this has led to a reduction in real earnings, for example, in San Diego the real earnings of drivers in the largest company have fallen by 30 per cent.

As for the level of service, Teal et al found no evidence of competition between the companies for better service, and there was not much evidence of improvement in response time at the telephone taxi market although the waiting time decreased slightly in San Diego. The latter represents the lack of service improvement, considering the common conditions of these three cities that the telephone booking market comprises most (70 to 80%) of the whole taxi market. (However, as some authors have argued response times do not necessarily improve with free entry as it depends on the number of taxis controlled by a radio dispatch company and the demand for such services, and not on the total number of vehicles in the city) The average vehicle age increased in Seattle and San Diego following deregulation, and this indicates deteriorated level of service in terms of vehicle quality. In addition, taxi operators were not providing new type of services such as shared ride taxis although they were permitted by amendment of local taxi ordinances in San Diego and Seattle.

In relation to the productivity of industry, deregulation was accompanied by decreases in concentration levels, because of a large increase in the number of independents who tended to serve the airport and the ranks. This led to significant increase in the non-productive time of taxis at such places and this has driven taxi companies away from these markets.

What Teal (1992) assesses as the most significant benefit of taxi deregulation in US cities is the increased economic opportunity to entry into the industry without high cost. It cost as much as $40,000 to purchase a licence from an existed operator before entry deregulation in those cities, which indicated some degree of monopoly profits in the market. However, the only entry costs after deregulation are for vehicles and, if necessary, radio and access to a radio dispatching service. As a result, more applicants can now have an opportunity to participate in the taxi industry. Even this benefit, however, did not contribute to lower the fares so much as expected by the proponents of deregulation.

4.1.2 Leasing System in New York

In spite of strict regulation on the number of taxis and fares, taxicabs in New York are notorious for low quality of service with thousands of complaints from passengers every year. The most frequent complaints concern drivers’ communication skills, ability to find passengers’ destinations, courteousness, reckless driving, service refusal or passby for some passengers, and overcharging. Some critics attribute this quality problems to the medallion system restricting number of yellow cabs, thus, deregulation to open entry may mitigate such problems. On the other hand, Shaller and Gilbert (1996) argue that leasing system is the right cause of bad quality. According to them, good service depends on good drivers who demand decent working conditions including higher wages. Then, leasing system compels drivers to work longer to compensate poor income which usually is the excessive part of their revenue after paying lease fees and operating costs such as fuel and vehicle maintenance, and this leads to deteriorated service. As an evidence that drivers’ lower wages does not result from licensing system, they illustrate the status of non-medallion cab sector drivers whose wages are lower than those of yellow cab drivers. In addition, they also illustrate the results of other cities experiences where taxi service has not improved in spite of entry deregulation.

At the end, the City proposed to change a rule recently (May 1998), under which drivers are required to take a defensive driving class, fines for smoking in a cab increase, and

taxi licence can be revoked or suspended if the driver receive too many moving violations. Moreover, the proposed rules also would mandate additional insurance fees for the operators.

4.2 RESULTS FROM THE EXPERIENCE OF UK

According to Toner (1996), as can be seen in the table 4.1, the number of taxicabs has increased by 47%, and hire cars by 56% during 1986 - 1991 since deregulation. This growth is larger than those in the period of pre-deregulation, which were 2% per annum for taxis and 6% per annum for hire cars respectively.

Table 4.1: Mean Fleet Sizes since Deregulation
by the Transport Act 1985
1986 1988 1988 (Predicted) 1989 1991
Taxis 66 76 68 87 97
Hire Cars 119 127 135 151 186
Total 185 203 203 238 283
Source : Toner (1996)

However, the features of this growth differ from area to area by the degree of deregulation undertaken in each district. Table 4.1 shows that the biggest increases in the licence numbers have occurred in areas where entry deregulated, however, there is no significant difference between those districts which deregulated before the 1985 Act and those which lifted restrictions since the Act. In addition, the number of private hire cars, consequently the total number of vehicles for hire by the public, increased at largest rate in areas which imposed restrictions on taxi entry. Even in areas with free entry, the growth of private hire vehicles was still significant. Toner notes that this suggests there is a role for the private hire car, hence current two-tier licensing system is to be preferred to serve the market efficiently. Besides these, the number of private hire cars and that of total taxicab licences increased most in those areas where taxi entry restrictions were maintained.

Table 4.2: Changes in Fleet Size and Composition during 1986-1991
Degree of Entry Regulation
No Issue
Since Act
Issue some
but restricted
Deregulated
since Act
Deregulated
before Act
% Change in Taxis 0 41.1 111.1 114.1
% Change in Private Hire 133.0 47.9 3.0 29.2
% Change in Total Fleet 75.7 44.7 41.9 63.6
Source: Toner (1996)

In terms of fare increases, there were no major differences found between deregulated and regulated markets, however, there were some interesting features of fare structure among districts. A large supply of private hire cars in districts tends to put downward pressure on regulated taxi fares due to competitive effects, while a large supply of taxis tends to raise fares. The latter is consistent with the hypothesis that an increase in the number of taxis requires a higher fare to ensure business viability and, that the deregulation of entry creates pressure for fares to rise.

Toner finds that quality enforcement was poor in those districts where taxi industry was deregulated, whereas districts which still impose limits on entry were more likely to have quality standards. For example, approximately 17% of deregulated districts do not use any checks on road-worthiness at all. He also notes that rank provision in deregulated districts was about half that in restricted districts, not corresponding to the increases in the number of taxis. This has led to overcrowding at rank. Moreover, innovation in service provision was found not to have increased signficantly in those markets, having no new type of taxi service such as shared taxis and taxibuses.

On the other hand, it was found that licence values were still existed in restricted markets, and the price has increased substantially.

4.3 RESULTS FROM SWEDISH EXPERIENCE

The number of licensed taxicabs increased significantly after deregulation in Sweden. According to Risberg (1992), the number of taxis in the whole country increased from approximately 1,000 in 1989 to more than 16,000 in 1991, especially in the large cities such as Stockholm and Goteborg it almost doubled. Majority of these new entrants were single owner driving operators, and some of them did not belong to radio booking centre. Gärling et al (1995) finds that the availability of taxicabs also increased in all size of cities as shown in the table 4.3, by surveying six cities varied in population size.

Table 4.3: Changes in Number and Availability of Taxis
in Six Cities after Deregulation
Small
Municipalities
Medium Sized
Municipalities
Large
Municipalities
1990 1991 1990 1991 1990 1991
Number of Taxis R1C2 R1C3 R1C4 R1C5 R1C6 R1C7
Number of Taxis
per 1,000 residents
R2C2 R2C3 R2C4 R2C5 R2C6 R2C7
Source: Gärling et al (1995)

Prior to deregulation fares were uniform across the country, however, they differed across and within municipalities after deregulation. Many radio dispatch companies introduced differentiated fares to encourage people to use taxi at off peak hours, e.g., lower fares for female passengers on late evening and zone price system. The fare structure also changed by eliminating extra charges on the number of passengers.

As far as the level of fares is concerned, there occurred contrary result according to time sequence after deregulation. At the early period of post deregulation, fares increased as Gärling et al and Risberg finds, however, Viredius (1997) reports they had fallen in the following years to such a level where there was no possibility of carrying out serious operation. Gärling et al attribute this temporary increase in fares to an attempt by the taxi companies to compensate for falling revenues, whereas Risberg finds it resulted from compensation for previous cost increase under fare control. Besides, taxi fares rose by approximately 20% due to introduction of value-added-tax (VAT) on public transport including taxis in 1991.

As a result of rapid increase in the number of taxicabs, competition became more intensive in most cities, and this caused a decrease of vehicle productivity in terms of occupancy rate. Profitability also dropped substantially, Risberg surveyed it had dropped by 25%. Such a trend was accelerated by introduction of VAT in 1991 and the economic recession, which considerably reduced demand for using taxis. Consequently. Viredius reports that more than 1,000 taxi companies went bust from 1991 to 1995, including all large companies having more than 10 vehicles. The working hours of owner driving operators lengthened in order to compensate the reduced profitability, and the wage system of employed drivers changed to a commission system, namely, wages are paid as a percentage of receipts.

As for the service quality, Viredius reports that police and public authorities received a number of complaints from foreign tourists who had been overcharged when travelling from the airport to the city centre of Stockholm. Sometimes, drivers rob their passengers after deregulation, whereas criminal passengers robbed drivers before deregulation. As a consequence, some regulations were reintroduced concerning qualifications of drivers in 1994. The structure of industry has not changed in some aspects that small companies with 1 or 2 taxis were dominant, and most of them still belonged to a radio centre. However, some companies developed niche strategies serving only certain segments of the market such as airport or public service, and there increased the number of larger vehicles for 6 to 8 passengers.

4.4 RESULTS FROM THE EXPERIENCE OF NEW ZEALAND

Deregulation has resulted in a significant increase in the number of taxi organizations and the number of taxi vehicles in New Zealand, especially in major cities. According to Gaunt (1996), in 1989 there were 107 operators and 2,762 vehicles nationwide, however, these had increased to 156 and 4,079 respectively by 1994. During the same period in Wellington, according to Morrison (1997), the number of taxi companies increased from 9 to 21 and the number of vehicles approximately doubled from 454 to 932, thus the ratio of cabs per thousand persons had increased from 1.49 to 2.43. Consequently, the availability of taxi services increased in those large cities, with a decrease in population per each taxi from 671 to 412. However, as can be seen in the table 4.4, the number of taxi companies reduced in smaller cities with less than 20,000 population, and the level of concentration of industry has reduced in large cities since deregulation.

Table 4.4: Changes in the Number of Taxi Companies since Deregulation
Population Total Number of Taxi Companies Average Number of Taxi Companies
Oct 1989 Dec 1991 Dec 1993 Oct 1989 Dec 1993
100,000+ 23 53 65 4.60 13.00
50,000 - 100,000 8 10 13 1.33 2.17
20,000 - 49,999 9 12 16 1.00 1.78
10,000 - 19,999 14 14 14 0.93 0.93
1 - 9,999 53 50 48 0.54 0.48
Nationwide 107 139 156 0.80 1.16
Source: Gaunt (1996) The impact of taxi deregulation on small urban areas :
some New Zealand evidence, Transport Policy, Vol.2, No.4.

Fare has changed significantly in the level and structure since deregulation by introduction of differential pricing components, which further customises the services and complements the expansion in the range of services. According to Morrison (1997), in Wellington region, taxi fares have increased in nominal terms, however, they have fallen in real terms reflecting the consumer price index during 1990 - 1994. Gaunt (1996) also reports that the four largest cities experienced significant reductions in average fares by 15-25%, whereas urban areas with less than 20,000 people have experienced modest increases in real fares since deregulation. However, there were little incentives to reduce fares furthermore, because incomes of drivers and profits of companies were already down in the city of Wellington.

Another remarkable result was the development of innovative taxi services, such as running of mini-buses on scheduled and fixed route services, successful tendering for the delivery of mail from New Zealand Post headquarters to distributed sorting centres. Innovations occurred more widely in the city of Wellington, namely, taxi vans were added to fleets, executive cabs with drivers in uniforms appeared, range and flexibility of company accounts were increased, new taxi-charge credit systems were introduced, and taxi companies started to tender for public bus routes.

As for the level of service, customers benefited from deregulation of the taxi industry, especially in terms of reduced waiting times and increased range of taxi services available without additional fares. However, the entrance of a whole variety of new drivers resulted in unqualified drivers who could not find destination, the right words or appropriate manners. This in turn led to the imposition of additional qualitative requirements such as the display of identification cards, procedures for passenger safety, and the reintroduction of area knowledge test.

Besides of these results. the increasing market power of the largest companies in securing lucrative niches like the airport trade in Wellington city represents that there is economies of scale and scope at least in that market. And the remova1 of quantity restrictions virtually wiped out the licence scarcity value and it was this loss of equity which was the main concern underlying the opposition from the taxi industry.

Overall, Gaunt notes that, especially in the large cities the consumers have benefited from deregulation, however there have been regulatory costs arising from this process in the form of the need for significant increases in quality control.

4.5 RESULTS FROM AUSTRALIAN EXPERIENCE (ADELAIDE)

As mentioned earlier, in the state of South Australia, taxi deregulation was undertaken by opening entry to hire cars, issuing more taxi licences, and allowing leasing system since 1991. The most considerable change occurred after deregulation was increase in licence value, which increased from $97,000 in 1991 to $152,000 in 1996 averaging 9.4% during that period. Radbone (1998b) finds this increase resulted mainly from the easing of restrictions on leasing, illustrating the price had risen to only $20,000 until 1985 when leasing was first allowed on conditions.

Another change was, as a matter of course, rapid increase in the number of hire cars and leasing taxis. There were only 50 of hire cars in Adelaide in 1991, then, by 1997 the number increased to over 900 among which more than two-third were estimated not to be actively providing passenger transport services, but to be just registered by individual owners as a tax avoiding measure. As a result, the hire car sector has become a significant threat to taxis. The number of leased taxis was 70 in 1989, but it increased to 527 (54% of total taxis) in 1998. (Radbone 1998b)

On the other hand, however, the rate for weekly lease declined in real term although it stayed constant in nominal terms with range of $286 - $316. Radbone explains that this lease rate represents over 10% of the capital invested to purchase a licence. As a result of spread of taxi leasing, a lease management market has arisen, and the current six radio booking companies supply this service as a means of keeping the vehicle in the fleet.

Radbone also argues that the leasing has an indirect depressive effect on drivers’ wages which have declined by 13% in real terms from 1987 to 1996. Such decline was also affected by the fares which have been held to the inflation rate by regulatory policy, and by the increased number of taxis serving a stagnant market after deregulation.

The lower returns to drivers was expected to result in lower quality of service. However, it has not been observed, instead, the quality of taxi service slightly improved in terms of waiting time. Radbone attributes the reason to changed regulatory practices, namely, the introduction of on-the-road audits by auditors posing as customers, the introduction of mandatory uniforms, and the granting of regulatory powers to nominated officials of the radio booking companies.

4.6 POTENTIAL EFFECTS OF DEREGULATION IN OTHER COUNTRIES

It would be not very easy to expect the effects of taxi deregulation in several countries where such a trend is put in practice recently or is supposed to do so in early future. However, there are some anticipations represented by several interest groups including relevant unions, operators and authorities.

In Japan, the authorities argue that deregulation of economic regulation would lead to fair competition and diversified service, and such argument is substantially supported by operators. They also expect the quality of taxi service can deteriorate, hence the effects of deregulation should be monitored continuously to adjust the level or speed of deregulation. On the contrary, Japanese Taxi Workers’ Union (Zenjiko Roren) argues that deregulation will result in not only cut-throat competition in the industry, but also deteriorated service in terms of safety and reliability. The main expectation provoking unions to oppose to deregulation may be that it would undermine the wage and working conditions of taxi workers which are already lagging behind other industries, as can be seen in several other countries where deregulation occurred earlier, If further deregulation progress into the direction which Japanese government decided in 1997 as mentioned earlier, it may results in some increase in the number of taxis licensed, more diversified fares, and reduction of the number of operating areas. However, it seems that the number of taxis and the level of fares will not change very much because Japanese taxi industry has been challenged with the depressed circumstance caused by decrease in demand.

Various effects were expected in South Korea during the whole process of recent taxi deregulation focusing on quality regulations, and some of them were verified already. First of all, the relaxation of condition for transferring individual taxis resulted in considerable increase in the number of sold or leased licences. It also led to spread of illegal leasing of company taxis, thus the working conditions and wages of drivers has considerably worsened. Consequently, a legislation of another regulation to eliminate those leasing system was made, as mentioned earlier. Moreover, the rolling party and government currently consider to prohibit trading of those individual taxi licences being issued newly, and to introduce a return system, namely, taxi licence must be returned to the authorities when the owner no longer wants to keep the licence.

As for the quality of taxi services, it is complained by the public that taxi services are getting worse and worse. The Federation of Korean Taxi Workers’ Unions (FKTWU) along with several NGOs representing citizen’s benefit, argue that the increased leasing taxis should be criticised as the villain of such deteriorated taxi services in most large cities. In addition, it is also argued that deregulation or relaxation of quality regulations, such as the limitation on the age of vehicles and restriction of vehicle operation with compulsory periodic rest, certainly cause deterioration of services.

In Ireland, a consultant’s interim report, which recommended 200 new licences for wheelchair accessible taxis, expected that some taxi drivers and cosies (those who hire taxis from licence owners) have to work excessive hours to make a living if the number of taxis increase in Dublin. Such an expectation is followed by the arguments against deregulation by unions including the Irish Taxi Drivers’ Federation and National Taxi Drivers’ Union. The price of the new licences was decided at much lower price (£15,000) compared to the current market price (£80,000). Therefore, it can be expected that the issue of these 200 licences at lower price will affect the current high market price. However, the market price is not likely to decrease significantly due to the resistance of the incumbent operators who have already bought a licence at high price, and a fact that these new licences may also be leased to drivers. Anyway the price of plate seems to be a key issue in the taxi deregulation now and onward in Dublin.


CHAPTER FIVE
ANALYSIS OF THE EFFECTS

5.1 A SUMMARY OF THE RESULTS

The results of taxi deregulation in several counties where it occurred so far are not very clear, but vary from country to country in most criteria for assessment. Such differences may be attributed to the different conditions of the taxi industry in each country. And they obviously resulted from the various contents of deregulatory measures which have been adopted in each country, as summarised in the table 5.1. In order to examine the effects of deregulation, it may be necessary to analyse these results thoroughly. Prior to analysing them, the results are summarised in the table 5.2., which may enable to compare each other more easily.

5.2 COMPARATIVE ANALYSIS OF THE RESULTS

5.2.1 Number of Taxis

As can be seen in the table 5.1, deregulation of entry has generally led to significant increases in supply. Consequently, availability increased in terms of the population per each taxi. However, in cities where entry was partially restricted, namely, the number of licences was still determined by local authorities based on an assessment of demand, as like in Japan, the increase was not very significant. The number of taxis increased at different rate from city to city even in a country, as can be seen in the results from the three US cities. This may have resulted from not only the previous level of supply, but also the different requirements for obtaining a licence. Especially, the latter might play a role of substantial entry barrier in case that its minimum standards were so high. On the other hand, the supply of private hire vehicles has continued to grow in Australia and UK, which indicates that the market would still demand services offered by private hire vehicles.

Table 5.1 : Measures for Taxi Deregulation in Experienced Countries
Country
(City)
Relevant Law
(year)
Entry
Regulation
Fare
Control
Quality
Regulation
Others
USA
(New York)
TLC (1971)
City (1990s)
Auction 400
new licences
1996-97
(na) Legalise
taxi leasing
since 1979
(na)
USA
(Phoenix)
Arizona State
Constitution
(1982)
Remove
keep capital
requirement
Remove (na) Reimpose
restriction on
airport taxis
UK Transport Act
(1985)
Eliminate
discretion in
licencing
(na) Allow
shared-ride
service
Allow to be
operated as
PSVs
Sweden Transport
Policy Act
(1989)
Remove
restrictions
on entry
Allow taxi
companies to
set fares
Abandon
belonging to
radio centre
Eliminate
operating area
New
Zealand
Transport Ser-
vice Licencing
Act (1989)
Remove
restrictions
Allow
operators to
set fares
Remain or
strengthen
Replace taxi
licence with
SPSVs licence
Japan Whole regu-
latory reform
since 1990s
Relax control
on demand
and supply
Diversify fares
by zone fare
system
Decrease
minimum
fleet
Reduce
operating area
by merging
South
Korea
Whole regu-
latory reform
since 1993
Relax
requirements
for licence
Devolve fare
set power to
local gov't.
Relax quality
regulations
and leasing
Widen
operating area
by merging
Australia
(Adelaide)
Passenger
Transport
Act 1991
Issue 15 new
licences every
year since '92
(na) Establish
accredidation
system
Abolish
limitation on
hire-cars
Ireland
(Dublin)
Consultant &
study reports
1997
Issue 200
new licences
(na) (na) (na)
The
Netherlands
Governmental
study and
decision (1997)
Introduce nat-
ional licencing
system in 1998
& relax in 2000
Introduce
national max.
tariff in 2000
Maintain
quality
requirements
Unify operating
areas over
whole country
in 2000
* (na) : Not deregulated or data not available.

Table 5.2 : Results of Taxi Deregulation in Countries
Country
(City)
Numbers
(Period)
Fare Level
(Licence Value)
Quality of
Service
Industrial
Structure
Innovation
in Industry
Drivers'
Condition
USA
(New York)
(Steadily
risen)
More
deteriorated
Leasing
increased &
complicated
Income
reduced &
working hrs
lengthened
USA
(Phoenix
San Diego
Seattle)
Phoenix 83%
SD 127%
Seattle 33%
increased
Increased in
all cities
(wiped out)
No evidence
of service
competition,
waiting time
slightly
increased
Concen-
tration
decreased,
turnover of
operators
increased
No new
service
UK Taxis 47%
hire cars 56%
increased
(1986-91)
No big
difference.
(Steadily risen
in restricted
area)
Quality
enforcement
was poor,
less ranks
provided
Composition
of taxis/
hire cars
not changed
No new
service
Sweden More than
30%
increased
(1989-91)
Rose during
early years,
fell down
later
Complaints
increased,
quality of
drivers
worsened
Small
companies
dominated,
productivity
decreased
Larger
vehicle
(for 6-8 pxs)
increased
Commission
wages
introduced,
working hrs
lengthened
New
Zealand
Companies
46%,
taxis 48%
increased
(1989-94)
Fell in large
cities, rose
modestly in
small cities
(wiped out)
Waiting time
reduced,
quality of
drivers
worsened
Concentration
decreased in
large cities,
except
Wellington
New service
(taxi-van
executive T)
mail
delivering,
advertising
Working
hours
lengthened
Australia
(Adelaide)
Hire cars
sharply
increased
Held to
inflation
rate
(sharply
increased)
Waiting
time
slightly
reduced
Leasing
sharply
increased,
lease manage
market
appeared
No new
service
Wages
reduced by
13% during
1987-1996
Japan Increased
by 1,500
(1993-96)
Diversified
and zone
fares
introduced
No evidence
of significant
changes
Operating
areas
reduced
significantly
Blue-Line T
in Tokyo,
shared-ride
taxis
Income
lowered and
working hours
lengthened

5.2.2 Level of Fares

As mentioned earlier, how the fares would change after deregulation has been the most important issue concerning taxi deregulation. Then, the results of each country represents that changes in the level of fares appeared to be very contradictory between countries. It increased in most U.S. cities where deregulation occurred between late 1970’s and early 1980’s. Teal et al (1987) illustrates in all theses cities fare increased 12% more than that in other cities taxis were regulated. On the contrary, in New Zealand, fares fell in large cities in terms of real price, while they slightly increased in small cities. The results from Swedish experience is more complicate with reverse by time sequence. Namely, during the early years after deregulation fares rose in most large cities, then they fell significantly in recent years. In the case of UK, it may be difficult to judge the effect of deregulation on fares, because fare control has still remained in most districts. Moreover, the number of districts controlling fares rather increased than before 1985.

In order to explain these complicate results, we need to look into the inherent nature of the taxi industry affecting changes in the level of fares. There are relatively stable demands for taxicab services, mainly from those who do not have ready access to a private car or other transport mode and from out of towm visitors, even though they compete with the other public transport mode. These stable demands are certainly inelastic to price, thus, fare increases will serve to enhance revenues which may reduce due to the increased competition. Additional explanation for the increase of fares after deregulation is a possibility of price leadership of some operators in higher price, and that of formation of price cartels among operators to prevent price competition. On the other hand, some arguments include that fares can be reduced by cost cutting after deregulation, especially with elimination of the existed licence values. However, the licence value was substantially eliminated only in a few cases, e.g., in New Zealand and several US cities, where the level of fares increased rather than decreased. Therefore, it can be said that deregulation of prices as well as entry will not lead to significant reductions in real fares.

Nevertheless, as can be seen from the effects of taxi deregulation in Sweden and New Zealand, this happened partly. Two reasonable deductions can be made for those cases: One is that the industry might have enjoyed a monopolistic profit before deregulation, thus fare reduction can be a process of adjustment of profitability of industry. The other is that the industry become to face cut-throat competition with considerable reduction in returns to the operators as well as drivers. The former is applicable to New Zealand, whereas the latter is applicable to Sweden.

The quality of service is likely to be difficult to say in a word whether ‘worsened’ or 'improved’ because the result differed in each criterion. In terms of waiting time, it decreased in New Zealand and Australia (probably in Sweden too) where the number of taxis increased and most taxis belong to radio booking centre. New type of taxi service was provided in some countries such as Sweden, New Zealand and Japan. However, the quality of drivers worsened significantly in most of those countries where entry has been opened or leasing has been allowed. The service quality in UK districts where taxis were deregulated also deteriorated due to shortage in the provision of ranks and poorer enforcement on quality.

In general, the quality of service is dependent on the level of quality regulations, and quality standards are expected to be lower in deregulated market than those in regulated market, as can be seen in the case of UK. In addition, service quality may also be affected by the quality of drivers who serve the customers directly. Then, the quality of drivers appeared to have worsened in most countries. This may have been caused not only by the considerably increased new entrants, but also deteriorated working conditions and wages. This may in turns affect the quality of service in those countries.

5.2.4 Profitability of Industry

The increase in the number of taxis serviced probably led to more competition between operators as well as drivers, which might have caused reduction of profitability of operators as verified in several countries such as Sweden, New Zealand and US. Especially drivers' working conditions deteriorated significantly in terms of wages and working hours in most countries where data were available.

In order to explain such results, we need to look into another nature of taxi industry, namely, taxi services are traded in a niche market between private cars and mass public transport. This market niche for taxi services is commonly small and more likely to contract than expand. Consequently, the increases in the number of taxis are not accompanied by the increases in the demand for taxi service. Instead, they lead to decreases in the productivity of industry in terms of the number of trips per cab per hour operated. The reduction of productivity certainly result in less revenue and lower profitability for the operators, unless the level of fares does not rise. However, profitability did not increase even in the case of fare increase in some countries. This can be explained with the increased competition which restrict increase of fares to compensate the loss of revenue. Reduction of profitability may also affect the quality of service as well as drivers’ working conditions and wages.

5.2.5 Licence Values

Another actor related to profitability is the change in licence values. As can be seen in the table 5.2, the existed licence value was wiped out in those countries where entry regulations were removed substantially, such as in New Zealand and three US cities. (probably in Sweden, too) Licence values remained and increased steadily in those countries where entry regulations not removed substantially, such as in UK and New York. In Australia, they increased sharply from AUS$97,000 in 1991 to AUS$152,000 due to relaxation of leasing. In Dublin new licences were issued at much lower price (£15,000) than existing market price ( £80,000), while in New York they were auctioned at the same prices with market prices, namely, at $170,000-$177,000 for each owner-driver medallion and at $210,000-$221,000 for each fleet medallion respectively.

As Shreiber (1975) argues, such high licence values may be undesirable because they can grant a windfall profit to whom the licences were originally issued, unless the regulatory authority does not charge for the licence. Especially, in the case that many operators have already bought their licences at high prices, it may be constrained to change policies on the level of fares and on the number of taxis. Moreover, they add to the costs of the industry, and make owners shoulder the capital burden to others either by

leasing their licences out or by engaging drivers on a bailee basis. This may result in less returns to lessees and drivers, thus negative impacts on the quality of taxi services. These side effects of the high licence values have been argued as an evidence to verify deregulation, because it may wipe out such licence values. On the other hand, Shreiber suggests to impose an annual fee which is equal to economic rent accrued during the year, as a measure to solve the problem of high licence values.

5.2.6 Structure of Industry

There are some consistent trends of changes in structure of the industry m most countries. The most considerable trend is a decrease in concentration of industry mainly due to increase of single or individual owner-driver operators. A typical case can be seen in Sweden where most of large companies went bust and single operators became more dominant. On the other hand, the only exception is Wellington taxis which formed large companies to obtain an exclusive right to operate in the airport. The concentration of industry is an issue closely related with economies of scale. It has widely been argued that the economies of scale is difficult to be realised in taxi industry because a large company may need larger costs, especially for wages, compared to a smaller company. The results of several countries such as Sweden, three US cities and South Korea, seem to verify this argument. However, size of companies would obviously be important, if it is combined with quality control over driver behaviour, taxi maintenance, pooled advertising, and other promotional activities in favour of all members. Especially, in the radio dispatched taxi market, this would be more apparent. Another change in the industrial structure is a significant spread of leasing in those countries where it has been relaxed or allowed, such as in New York, Australia and South Korea. The common effects of leasing are, as can be seen in some countries, that it worsens working conditions for drivers and deteriorates service quality and increases licence values. The reason that leasing increases licence values is that it can bring more props to the owner through shift based operation which encourages the cab to be put on the road more.


CHAPTER SIX

CONCLUSION

Proponents of deregulation suggest that taxi deregulation over entry and fares will result in various consumer benefits such as increased. availability, lower fares, and improved service. In addition, they argue deregulation will promote innovation within the taxicab industry with provision of various price-service options and new type of services such as shared ride taxis. Whereas, proponents of regulation contend that free entry will lead to excessive supply of taxicabs, which provoke cut-throat competition among operators as well as drivers. As a consequence, reduction of revenue will deteriorate drivers’ living condition, and will threat the industry itself. Besides, they argue the fares will increase and service will worsen if the relevant regulation would be removed.

Then, the results of practical experiences in several countries are not completely consistent with any one of the arguments, but agree partly with both arguments at different categories from country to country. Generally speaking, however, the effects of taxi deregulation was not so beneficial to consumers. This is because fares has not fallen significantly in most cases, and quality has not improved so much as expected. The returns to operator as well as drivers also decreased with relatively lower profitability and wages respectively. In addition, there was no significant evidence of innovation in the industry, but the structure of industry became more fragmentary.

The results of this study show that deregulation as a whole was not very effective at least up to now in the taxi industry. Many problems occurred by the free entry and by the inadequate enforcement of regulations governing public safety and the behaviour of the operators. The latter especially highlights the importance quality controls, even in a deregulated market. Thus, more stringent regulations are necessary in order to ensure high quality and improved safety in taxi services. In addition, market entry should be regulated somehow, and the level of fares also need to be controlled. However, this does not mean that any regulatory reform or change is unnecessary. If current regulatory system causes serious inconvenience to the consumers in terms of low availability or bad quality or too high price, there may be needed some regulatory reforms considering the inherent conditions of the taxi industry in a city or a country.

Therefore, we can conclude that deregulation of entry and fares mustn't implemented unconditionally, but it should be adopted within certain limits. Moreover, regulation on quality mustn't be removed nor relaxed, but it should be strengthened. Based on these conclusions, some measures concerning taxi deregulation can be suggested as following: First. Such an entry regulation that fixes the number of taxis served in a certain area, as like New York Medallion System, should be replaced by a more flexible system. For example, if the availability of service is too low with limited number of taxis in an area, such restriction on the market entry may need to be relaxed by issuing new licences, which can be seen in the case of Dublin. In this case, it can be problematic to estimate a shortage of supply and to determine the appropriate numbers. However, the level of supply can be monitored by checking the occupancy rate of taxis operated, thus, as like in Japan, when the rate increase higher than certain standard (e.g. 60% or more), new licence can be issued. Otherwise, the number of licences can be determined regularly based on a ratio reflecting population and the size of demand for taxi services, as can be seen in Toronto.

Second, the level of fares should be controlled by setting a maximum limit as well as a minimum limit, as can be seen in Japan. In this case, each limit can be determined and adjusted regularly within such a range that they ensure fair competition between operators. In addition, the responsibility to set such fares should be granted to a public body instead of a governmental authority to prevent the regulatory capture. Such a public body can be composed of some representatives of customers, those of drivers, those of operators and those of authorities.

Third, enforcement of market exit can be introduced in the light of quality regulation. Namely, if an operator or driver violate regulations frequently, his licence can be revoked or suspended temporarily. In this case, new licences can be issued as may as the number of licences revoked during a period. There are some other measures ensuring market exit the problematic operators, such as the periodic licence renewal system which can be seen in some American cities, and the licence return system which can be seen in Denmark. The latter works in such a way that any licence should be returned to the relevant authority when the holder can not continue to provide service.

Finally, it must be prohibited to trade or lease taxi licence to others than the original holder, in the light of consumer protection This is because, as mentioned earlier, licence trade and leasing produce high level of licence value which can result in various side effects. By doing so, the existing licence value will certainly be eliminated. In this case, however, any loss of the incumbent operators who have bought a licence at high price should be compensated, as Toner (1992) suggests. The measure how to compensate for it may need to be studied furthermore.

ACKNOWLEDGEMENTS

I should like to thank my supervisor, Dr. J.P. Toner for guidance and comments during this study. Thanks are also due to Mr. J.Kawamura and the International Transport Workers’ Unions (ITF) for the provision of data; to Prof. E. Shon and the British Council for their supporting to study at the ITS. I should also like to take this opportunity to thank my parents, who always encourage me with boundless love.

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USA

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New Zealand

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Japan

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Other Countries

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