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

Inquiry findings
è Within the market for point-to-point transport
services, there are important market segments
for services acquired at ranks, hailed on the
street or pre-booked.
è There is significant overlap in the pre-booked
segment between the services offered by taxis
and hire cars, but regulations limit the degree
of substitutability between different kinds of
point-to-point transport services.
è Public transport is only weakly substitutable
for taxi travel, and in some cases may
even be complementary. This implies that
restrictions preventing taxis and hire cars
from offering route services reduces use
of taxis but does not significantly increase
use of public transport.
è Geographic markets for services largely mirror
zone restrictions, but there are some instances
where zones are drawn that may not be
reflective of substitution possibilities.
10.1.4. The nature of competition in taxi
and hire car markets
Some unusual features of markets for taxi and hire
car services, particularly in the rank and hail market
segments, can cause problems with the operation
of competition. As discussed in chapter 7, market
failures can arise in the sense that competition between
operators does not produce the kind of outcomes that
would benefit the community generally.
How some of these features have developed is unclear.
Notions of ‘fairness for drivers’ and ‘market order’ are
likely to have been behind some of these features. In
some cases, regulation has entrenched these market
behaviours, making competition less likely rather than
more likely. It is important to understand these issues if
changes to regulation are to make a contribution to a
more competitive and more efficient market which better
services consumer’s needs.
Some of these key features are:
• There is a convention that customers will take the
first taxi off a rank, even though by law consumers
have explicit rights to choose any taxi off the rank.
This means that taxi operators do not compete for
customers in rank and hail situations. This means that
there is simply no point in competing by offering lower
fares, as this will result in no more sales. Equally, there
is no point in improving quality to try and differentiate
services if all that does is increase costs (because
consumers are unlikely to choose a higher quality
vehicle from the rank).
• Rather than competing for customers, taxi
operators compete for drivers. Operators must
offer drivers a package of services (including
a vehicle) that makes it worthwhile for drivers
to drive. The intensity of this competition has
sometimes been questioned, particularly when
there is a large supply of available drivers but,
at the present time, the inquiry has heard that
competition between operators for drivers is strong.
• Booking networks compete to attract bookings from
customers. These bookings are distributed to vehicles
using criteria related to waiting time for the driver and/
or the location of the driver. Customers have only
limited ability to request particular taxi operators,
vehicles or drivers. 6 Again, this limits the ability of
operators to compete with one another on the basis
of fare or driver and vehicle quality. Any vehicle of any
quality (above a regulated minimum standard) can get
fares by simply waiting long enough or in the right spot.
These market features have a profound influence on
market performance. Rather than operators having
incentive to build their customer base by offering
better service and lower prices – as could be expected
in competitive markets – taxi operators face strong
incentives to ‘skimp’ on service quality. Where reducing
quality saves costs, there is little disincentive to do so
(again, regulation also has a role to play in preventing
services falling below some minimum standard). This
affects vehicle standards, but – and perhaps more
importantly – it also affects the kinds of drivers to
whom operators bail their vehicles. These predicted
outcomes have been borne out in the inquiry’s research
on consumer experiences with taxis, particularly in the
metropolitan Melbourne area.
6 Customers can request a wheelchair accessible taxi (WAT) (or not
a WAT) or vehicles with luggage capacity. Both major metropolitan
NSPs have recently introduced ‘premium’ driver services, where
customers can request a particular driver or a premium vehicle for an
additional fee
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