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

The ACCC has been called on a number of times in
recent years to deliberate on mergers and acquisitions
between taxi depots or NSPs. The salient points for the
inquiry from these deliberations are:
• The approach taken by the ACCC to market definition
• The ACCC’s competition analysis, including the
nature of the issues identified
• The outcomes arising from the ACCC decisions,
including what this might mean for the shape of the
industry in the future.
Analysis of the ACCC’s decisions is limited by the amount
of information released by the Commission in reaching
its conclusions. Much of the information received by
the ACCC is retained as commercial-in-confidence
material, with often only a summary of the issues or
considerations available publicly. Nonetheless, the inquiry
has undertaken some analysis of these decisions on
the basis that there may be important lessons for how
competition in NSPs has developed and may continue to
develop over time.
Market definition
Acquisitions considered by the ACCC have usually
involved markets for either the provision of radio booking
services to taxi operators or the provision of pre-booked
taxi services to the public. In some instances, notably
where Cabcharge has been a relevant party, the relevant
markets have also included those for taxi-specific noncash
payment instruments or payments processing.
The geographic scope of the markets identified
has invariably been determined with respect to the
zones within which licensed taxis operate. This is
notwithstanding evidence that some depots have
stronger market positions in certain geographical areas
within those zones (for example, North Suburban and
West Suburban Taxis). Payment markets have usually
been defined nationally.
The ACCC’s decision in relation to Silver Top’s attempted
acquisition of North Suburban Taxis in 1995 remains the
richest source of the Commission’s analysis with respect
to mergers or acquisitions of NSPs and depots. 52 In
that decision, the ACCC noted the following factors as
supporting its market definitions:
It is readily apparent that in many situations street or
rank hire will be a very inferior, or no real substitute to
pre-booking a taxi … Furthermore, the hiring of taxis
from ranks or on the street does not appear to
constrain the taxi depots in any direct competitive
sense. This is particularly so when it is considered
that all taxis must be affiliated with a depot. It is not at
all clear that taxi depots are in any way sensibly
constrained by the opportunity of passengers to
street hire or the nature of competition amongst
individual taxi drivers for street hire passengers.
…it does not appear to the Commission that there is
any substantive evidence to suggest that hire cars
offer the close degree of competition that is relevant,
either to other taxi operators or taxi depots, at the
same time recognising that hire cars may have some
degree of competitive impact generally in respect of
taxi services. 53
In this decision, the ACCC also noted the links between
the two markets as defined above:
As will become clear, it is the first market with which
the Commission is particularly concerned, however
recognising that the degree of competition in the
first market will affect the quality and level of service
in the later. 54
Although this terminology was not widely used in the
economic literature at the time, it is now recognised that
these inter-dependencies are fundamentally important to
the analysis of these kinds of markets. They are known as
‘two-sided’ markets: where the role of firms within these
markets is to coordinate interactions between two groups
of users on either side of a transaction. Firms competing
in these markets are essentially trying to solve an ongoing
problem of balancing between two sets of consumers: a
taxi booking service has no value to consumers if there
are no vehicles attached to the depot and the booking
service has no value to operators unless there are
consumers who call the booking service seeking a taxi.
One important implication of this is that it is not possible
to fully understand what is going on in one side of the
market (such as the market for depot services) without
understanding what is going on in the other side (such as
the market for pre-booked taxi services).
In general, and as noted above, the ACCC has
recognised these interactions. However, in some
cases the ACCC has made comments suggesting
that competition for operators is much weaker than
competition for customers.
52 ACCC, Silver Top Taxi Service Commission Determination,
16 October 1995
53 Ibid., p.17
54 Ibid., p.18
Understanding industry performance CUSTOMERS FIRST 239