Part D – Understanding and improving industry performance (PDF ...

Secondly, the inquiry presents its analysis and findings on
the effects of key regulations that apply to taxis, hire cars
and other point-to-point services. The key regulations
discussed in this section are:
• Restrictions on entry
• The assignment of taxi-cab licences
• Zoning
• Fare controls on taxi services
• Restrictions on competition between taxi, hire car
and other forms of private or public transport.
Safety-related regulations (including regulations relating to
the age of vehicles) are discussed separately in chapter 17.
10.1. Markets for taxi-cab, hire car
and other services
The licensing regulations imposed by the Victorian
Government have a range of effects on the industry’s
structure and on the conduct of industry participants.
The regulations have a significant influence on how the
industry is organised to produce point-to-point transport
services (the market structure), as well as on the kinds
of conduct that licensees are allowed to undertake.
Consequently, they have a significant impact on
competition and market performance.
The inquiry has assessed this impact in the context of
the relevant markets in which point-to-point transport
services are supplied. A market is defined simply as the
area of close substitution between firms. Competition
can occur in a number of market dimensions, including
differentiation of services (product market) and across
different geographic areas (geographic market).
10.1.1. Market segments
Generally, it is helpful to define markets by considering
the activities undertaken by the firms whose conduct is
being analysed. 1 Both taxi-cabs and hire cars provide a
service offering flexibility of pick-up point and destination,
as well as privacy and seating for all passengers. Taxi
services may be acquired in different ways, with three
market segments traditionally being identified:
• The ‘hail’ segment – where taxi-cab drivers pick up
customers from the street after being hailed
• The ‘rank’ segment – where customers queue at a
designated point for pick up (a taxi-cab rank)
• The ‘pre-booked’ segment – those cabs that are
booked by phone and dispatched to drivers via a
booking service. In recent times, the growth of mobile
phones and smartphone applications has given this
segment an additional boost, with direct-to-driver
bookings now possible.
Although taxi-cabs supply services in all three segments,
the prospects for competition between service providers
vary between the different segments. For example, in the
pre‐booked segment, the potential exists for a much greater
degree of price competition. Hire cars are constrained to
operating only in this market segment and, in the absence
of further regulation, strong competition could be expected
between taxis and hire cars for pre-booked work.
Other forms of commercial passenger vehicle transport
provide services that are likely to be substitutes to varying
degrees for taxi services. These include other private and
public commercial passenger vehicles: hire cars, buses,
trams and trains.
It is difficult to further analyse substitutability without
considering the effect of the current regulations. The best
example is provided by examining whether hire cars and
taxis offer substitutable services. It is clear that, in principle,
hire cars are likely to be a very close substitute to taxi-cabs
as both offer a door-to-door service. But regulation limits the
degree with which the two services can compete. Hire cars
may only operate in the pre-booked market segment and
have different quality requirements (such as those imposed
in relation to vehicle quality), which have resulted in hire cars
becoming a higher quality, more expensive service option.
Other kinds of hire car service – such as wedding cars – are
more specific-purpose in nature and therefore unlikely to be
highly substitutable with taxis or hire cars.
1 See comments of French J in Re Singapore Airlines Limited v
Taprobane Tours WA Pty Ltd [1991] FCA 621; (1992) 14 Atpr 41-159
(1991) 104 ALR 633 (1991) 106 ALR 115 (1991) 33 FCR 158 (12
December 1991). “In any given application it [a market] describes
a range of economic activities defined by reference to particular
economic functions (e.g. manufacturing, wholesale or retail sales), the
class or classes of products, be they goods or services, which are the
subject of those activities and the geographic area within which those
activities occur”
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