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

Merging the taxicab markets of two closely related
adjacent cities can improve market efficiency, even
when taking the existence of extranormal profits into
account. The number of available taxicabs increases
as taxicabs are allowed to pick up passengers in the
adjacent city. If the taxicab industry’s profit allowance
is left unchanged, the benefits of the merger can be
passed on to consumers through lower prices and
wait times. 91
Flores-Guri further noted that the higher the probability of
rides that cross zones, the larger the gains in efficiency.
Further, and critically, Flores-Guri suggested that concerns
about a loss of service in one of the zones might be
misplaced: “evidence that taxicab profits are similar in both
cities would indicate that taxicabs will continue to serve both
cities once exclusive cruising regulations are removed.” 92
10.4.4. Zoning issues raised during
the inquiry
A number of discrete issues about the effect of zoning
regulations were raised with the inquiry, including:
• The designation of the Melbourne metropolitan
zone boundary
• Whether the outer suburban zones should be
maintained or brought within the metropolitan zone
• Service concerns in the Yarra Valley potentially
caused by zoning restrictions
• The costs of Avalon Airport being in the Geelong
taxi zone when much of the traffic from this
destination is to or from Melbourne
• The impact of zoning regulations on competition
between networks.
Metropolitan Melbourne boundary
The inquiry received a submission from the Eastern
Transport Coalition, a grouping of seven municipalities
in Eastern Melbourne. The Coalition was critical of the
current operation of the metropolitan and those country
zones that border the metropolitan zone:
The Metropolitan Taxi Zone boundary extends
through three of the councils (Manningham City
Council, Knox City Council and Yarra Ranges Council)
who are members of the Eastern Transport Coalition
which are all also located on the edge of the Urban
Growth Boundary. As a result the issues faced by
these councils with regards to transport and taxi
provision are very similar.
The key issue with the operation of taxis within the
three Councils is the location and limitations on the
operation of taxis outside the Metropolitan Taxi Zone
boundary. Many people live within the Country Taxi
Zone but access key services, including health,
employment, transport, shopping and entertainment,
within the Metropolitan Taxi Zone. While taxis operating
on either side of the boundary are able to take fare
paying passengers to the other zone, they are unable
to pick up passengers on the return trip. This often
results in passengers being refused travel in both
directions causing inconvenience and delay for users
and/ or poor financial viability for drivers. 93
The problem experienced here is illustrative of problems
of zoning, particularly when boundaries are not updated
frequently to capture areas from which trips to and from
the zones are common.
This example is also a useful illustration of the
problems that are caused by restrictions on licences. In
principle, it should be straightforward to change zoning
arrangements so that issues such as the one identified
by the Eastern Transport Coalition could be resolved.
The metropolitan and relevant country zones could
simply be amalgamated and any inefficiencies avoided.
However, because the licence values (profits) in the
two zones are likely to be very different (with licences
that are metropolitan-zoned trading for much higher
prices), amalgamation could cause taxis in the existing
country taxi zone to leave the area for the higher-yielding
metropolitan zone. This could reduce service in the
existing country zone. Indeed, even releasing more
licences will not solve this problem unless it has the
effect of equalising the profits available in serving the two
areas. Any new licensees would prefer to service the
metropolitan area unless the profits from serving the old
zone area are the same.
It is also possible that such problems could be avoided
if overlapping zones were created, so that in border
regions, there is less likelihood of service refusals and
dead running. But this would clearly be a second-best
option and a highly-instrusive regulation to enforce.
The outer suburban zone and neighbouring zones
The status of the outer suburban zone has clearly been a
point of debate for some time and has been raised again
during the inquiry.
91 Flores-Guri, Daniel (2005), ‘Local Exclusive Cruising Regulation and
Efficiency in Taxicab Markets’, Journal of Transport Economics and
Policy, Volume 39, Part 2, May 2005, p.164
92 Ibid., p.165
93 Eastern Transport Coalition, Submission to the Taxi Industry Inquiry,
SS94, p.1
Understanding industry performance CUSTOMERS FIRST 209