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

Inquiry findings
è The existence of substantial economic
rents (exemplified in taxi licence values
and in the licence assignment price and
terms and conditions) suggests that fares
are too high and that the community
makes far less use of taxis than it would
if fares were based on the true economic
costs incurred in providing the services.
è The benefits of entry restrictions
accrue to licence holders, not to
taxi operators or to taxi drivers.
è Supply restrictions also create issues
for the industry in meeting demand
at peak times of the week.
è The Victorian Government does not currently
collect the information that is required to
effectively regulate taxis under the current
regulatory structure. This means there are
serious doubts that the restrictions on taxi
licence quantities produce the right number of
taxi-cabs to serve consumer interests.
10.2.6. Regulations applying to entry of
hire cars
In metropolitan Melbourne, hire car licences are not
subject to the same kinds of controls as those applying
to taxis. In 2002, the Victorian Government removed the
public interest test on new hire car licences, allowing
open entry for new providers into the industry. The
Minister for Transport at the time suggested that “these
applicants will now be able to purchase new hire car
licenses as of right, allowing a greater number of licences
and increased competition within the hire car market”. 50
However, the Government did not offer new licences at
no charge. Rather, it decided to release new licences at a
price of $66,000 (GST inclusive). The reform package in
2002 included a commitment to review this fee within two
years. This review was undertaken by the ESC, which
recommended a lower fee of $44,000 (GST inclusive).
The Government subsequently decided to set a fee of
$60,500 (GST inclusive).
50 www.dtf.vic.gov.au/domino/Web_Notes/MediaRelArc02.nsf/
fce5683f42af57f04a256b36001bd4df/f9d205ebae17dd35ca256bb50
008adc0!OpenDocument, accessed 27 January 2012
Outside metropolitan Melbourne, the public interest test
for hire car licences has been reinstated. Licences are
issued at a cost of $20,500 (GST inclusive) per vehicle.
Vehicles operating on Country Hire Car licences are
issued with special identifying VHC registration plates.
The VTD will consider applications for Country Hire Car
licences provided that the issue of the licence is deemed
to be in the public interest, including having regard for
taxi-cab or hire car services in the district in accordance
with section 142 of the Transport (Compliance and
Miscellaneous) Act 1983.
The inquiry notes that the benefits and detriments
from the metropolitan hire car licensing scheme will be
somewhat different to those applying to taxis.
A major issue with the licensing scheme for hire cars is
that there is strong theoretical and practical support for
competition working much more effectively in the prebooked
market segment. The pre-booked market has
very different characteristics from the ‘cruising’ markets,
with consumers having greater ability to choose between
competing companies and hire car companies having a
much greater reliance on repeat business. Competition
can keep service standards higher in the pre-booked
segment than in situations where the probability of repeat
business is low (for example, the likelihood of catching
the same taxi).
On the detriment side, the licensing scheme effectively
turns a quantity-based restriction into a price-based
restriction on entry. The major benefit of this is that it
does not require the licensing authority to determine
whether there is a ‘need’ for more vehicles. Operators
are free to make commercial judgements about whether
there is sufficient service demand to support another
vehicle; they will do so where the expected commercial
benefits are sufficient to offset the $60,500 licence fee.
Consequently, this policy has resulted in the entry of a
significant number of new hire cars since 2002.
However, some detriment from the restriction clearly
remains. It may imply that fares are higher than they
would otherwise need to be (although this depends on
how closely hire cars compete with taxis) and that there
are limits in dealing with demand at peak times. The
inquiry has heard anecdotal evidence that this has led
some operators to illegally substitute private or other
licensed vehicles (such as SV category licensed vehicles)
when demand for their services is particularly high.
Further, and in combination with other kinds of
regulations about vehicles, the licence fee limits the
development of new and innovative business models. In
particular, the inquiry notes the widespread development
of hire car services in large cities such as London and
New York, which have arisen in an environment where
hire car licences are issued as of right.
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