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

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The number of licences is restricted and additional licences are never issued or only issued periodically on an ad hoc basis or according to a predetermined demand formula. A quantity restriction on licences is one of the most common forms of entry restrictions in taxi market worldwide. The rationale for quantity restrictions is often advocated as a means to correct for ‘excess entry’, stabilise driver incomes, control vehicle standards and deal with congestion and pollution. All states and territories in Australia restrict the quantity of taxis permitted to operate, as do many international jurisdictions, including many cities throughout North America and Europe. Closed entry models tend to be slow to adapt to changing circumstances. Because incumbents are protected at the expense of new entrants, the industry develops a strong interest in maintaining the status quo and becomes increasingly dependent upon regulation to underpin its survival. The evidence from places that have persisted with highly restrictive entry to taxi markets suggests the following: • Licence values keep rising, as the new supply of licences rarely keeps pace with demand. • Competition is highly restricted to protect licence values, including zoning restrictions and restrictions preventing hire cars from competing too closely with taxis. • Innovation is stifled, because new ideas, services and technologies may also encourage competition (and threaten licence values). • Regulation becomes increasingly intrusive in order to improve or maintain service quality, because insufficient competition and market incentives exist to naturally force industry participants to improve quality. • Despite providing the on-the-ground services, drivers become marginal stakeholders in the industry, poorly paid and with few prospects of owning a licence or becoming long-term industry participants. This marginalisation gives them few incentives to improve service quality. • Over a period of time, the industry starts to wither and become less viable, as there is little hope of expanding the taxi market or increasing taxi occupancy rates while those industry players who are protected by regulation look first to secure their own interests. Open entry Open entry markets have no restrictions on the number of licences, other than those that are required to fulfill minimum criteria related to service standards. Well-documented examples of open entry regimes include Ireland, New Zealand, Sweden, the Netherlands and Singapore. Generally, an open entry model offers a more dynamic long-term framework within which an industry can grow and expand: • Licence values tend to be close to zero in an open market, undermining the market power of incumbents. • Greater service differentiation occurs, with more incentives to provide the services consumers want. • There is the potential for fewer barriers to price competition, as there are no licence restrictions bolstering artificially high prices. • With no risks to licence values to take into account, and greater competition, there are more incentives for innovation and experimentation. • Regulators can focus their efforts more on ensuring the safety of drivers and passengers, and on improving service standards, rather than regulating the number of licences in the market. • Drivers have opportunities to become operators, giving them a greater stake in the industry, a longterm career path and greater incentives to improve service quality. 9.1.2. Summary of global approaches While views about these basic models vary from place to place, there does appear to be a global trend towards a freer entry model, with most jurisdictions recognising that it will provide much better outcomes over the longer term. However, many governments acknowledge – or have learned from their experiences – that licence liberalisation may not be achievable in the short- to medium-term (due to particular industry conditions, historic factors or political considerations) and/or may need to be accompanied by regulation focusing on service quality and safety. The various approaches adopted by Australian and international jurisdictions cover the spectrum of regulatory reform – with varying degrees of success. However, some trends are discernible: • While most governments – and economists – prefer an open entry model, the practical impediments to implementing such a model can be significant. In particular, when licence values are high, governments may face difficulties in opening up entry due to strong resistance from incumbent licence holders. Understanding industry performance CUSTOMERS FIRST 159
• Licence liberalisation has generally produced positive effects for consumers in the form of improved availability of taxis, better service quality, reduced waiting times and a greater range of services offered. But it can be disruptive in the short term if it not delivered as part of a wider reform program. • Minimum quality controls are needed to reduce the potential negative impacts of liberalisation and ensure adequate outcomes in the taxi industry postliberalisation. • The sequencing of reforms is important, with reform more likely to succeed where service and safety standards are established prior to relaxing entry requirements and where compliance with these standards is closely monitored post-liberalisation. • The choice of fare regime accompanying liberalisation is critical to ensuring that there is not an ‘oversupply’ of taxis following liberalisation and that fares do not rise post-liberalisation. These issues are examined in greater detail throughout this chapter. 9.2. Common approaches in other jurisdictions Alongside various degrees of restriction on entry, the inquiry’s examination of international jurisdictions reveals there are other common regulatory approaches used around the world. This section summarises these common approaches. 9.2.1. Fare regulation Most places regulate taxi fares, even in open entry markets, albeit to different degrees. The rationale for regulating fares is that competition between taxis will not be effective while consumers face informational constraints and while certain market conventions act to limit competition – for example, the convention to take the first taxi off the rank. As noted throughout this report, in any discussion of taxi markets, it is important to understand the difference between the rank and hail market and the pre-booked market for taxi services. The market failures mentioned above are evident predominantly in the rank and hail market. In the pre-booked market, consumers are usually better placed to ‘shop around’ to obtain the service they want at the ‘right’ price, making the rationale for fare regulation in the pre-booked market less compelling. There are several main forms of fare regulation found in international jurisdictions: • Regulated set fare schedule – where all components of a fare (flagfall, distance charge) are decided by government and service providers must charge according to the fare schedule. This is common in jurisdictions with restricted entry, such as New York. • Regulated maximum fare – where government sets a maximum fare amount and service providers are free to charge less than the maximum (sometimes a minimum fare is established in addition to a maximum). All Australian jurisdictions, other than Victoria, have maximum fares set by government, where the driver can charge any rate at or below the metered fare. • Fare notification – where industry participants (often taxi booking companies) are allowed to set their own fares, but must have the fare registered or approved with the taxi authority prior to it coming into force. For example, New Zealand requires Authorised Taxi Organisations (ATOs) to register maximum fares with the New Zealand Transport Agency (NZTA) and have these fares approved prior to coming into effect. • Facilitated price comparisons, such as fare posting requirements – where service providers are free to choose the fares they charge; however, fares must be advertised or ‘posted’ on each taxi in a prescribed manner. In addition, some jurisdictions require fares to be pre-registered with the regulator. For example, while fares are deregulated in Sweden, there are guidelines and agreements for how fares should be displayed both inside and outside the taxi. The following components of taxi fares are often (but not always) regulated: • Flagfall • Amount charged per unit of distance • Amount charged per unit of wait time (applies if vehicle speed falls below a set speed) • Booking fee • Late night and holiday fees • Fees depending on number of passengers, zone or area of operation. A more detailed discussion on fare regulation and fare structures, including approaches taken in different jurisdictions, is included in chapter 20. 160
Page 2 and 3: Part D Understanding industry perfo
Page 6 and 7: 9.2.2. Quality and safety controls
Page 8 and 9: Case study New Zealand’s experien
Page 10 and 11: Case study Singapore’s unique reg
Page 12 and 13: Case study London’s quality contr
Page 14 and 15: A report commissioned by the inquir
Page 16 and 17: Another possible explanation for hi
Page 18 and 19: From these comparisons, we can obse
Page 20 and 21: New Zealand is an example of a taxi
Page 22 and 23: Chapter 10. 10. Taxis, hire cars an
Page 24 and 25: 10.1.2. Substitution with public tr
Page 26 and 27: Nonetheless, there are market mecha
Page 28 and 29: 10.2.2. Detriments from restriction
Page 30 and 31: On the other hand, some submissions
Page 32 and 33: 4. The regulatory burden of decidin
Page 34 and 35: Country licence releases and the pu
Page 36 and 37: 10.2.3. Are there offsetting benefi
Page 38 and 39: The inquiry conducted research into
Page 40 and 41: 10.2.4. Valuing the effect of licen
Page 42 and 43: It would also be possible to implem
Page 44 and 45: Inquiry findings è The detriments
Page 46 and 47: In its 1999 report, KPMG argued tha
Page 48 and 49: 10.3.4. Effect on taxi operators an
Page 50 and 51: The practices raised with the inqui
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Merging the taxicab markets of two
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A further summary of these data is
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10.5. Regulation of taxi-cab fares
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• It exposes taxi operators to a
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KPMG argued that these restrictions
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10.7. Vehicle regulations Taxis and
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Advertisements The policy to remove
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In recent years, NSPs have increase
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Some respondents argue that the mar
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Driver obligations to the NSP NSPs
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There are nine accredited secondary
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From 1953, the use of two-way radio
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11.4.2. Mandatory network affiliati
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The inquiry considers that there is
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Walters FM also said: Until such ti
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The ACCC has been called on a numbe
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The ACCC also noted that West Subur
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This also means that other NSPs and
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Metropolitan NSPs charge affiliatio
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Figure 12.1 Average fare costs, met
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11.8.3. Affiliation with more than
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However, unlike most other goods an
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12.3. Characteristics of the paymen
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A further key feature of two-sided
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Case study Cabcharge penalised for
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To compete with Cabcharge, the newe
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12.5.1. Removing regulatory barrier
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In addition, given the well establi
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