Recently in Auckland there has been outrage at the high prices of taxi fares. The last significant change to the taxi industry was caused by government deregulation, in 1989. This economic inquiry report is going to investigate the impact of this government policy, and the unintended consequences for both consumers and taxi drivers.
SUPPLY AND DEMAND
Deregulation decreased the barriers to entry for people wanting to become taxi drivers. This is due to a removal of a restriction on the number of taxis operating in specific areas, thus anyone can become licensed. Only basic requirements, such as passenger safety, and testing metering, equipment exist (Gaunt, 1996). The effect of ...view middle of the document...
The intention was that the free market would control these fares; particularly as the taxi market is a monopsony, if not perfect competition, for the most part.
Although this method of controlling fares has not been overly effective as once a passenger is in a taxi, and commenced their journey they are at the mercy of the driver, they are a captive audience. This means they must pay the fare that the taxi driver states, as they have very few alternatives. They also cannot leave their taxi journey halfway, as they are likely to be stranded somewhere, which is particularly true when there are no substitutes (e.g. public transport) present, such as late at night.
IMPACT ON TAXI DRIVER’S
The deregulation has also had an impact on taxi drivers. This is because of the huge increases in the quantity of taxis available. The result of this is that “there are so many drivers that there's not enough work” (Fa'avii as cited in Cumming, 2014, para. 28). This indicates the removal of the quota that restricted the number of drivers in an area has resulted in an oversupply of taxis. The effect of this is that if drivers are only being paid per journey, they are likely to be making fewer journeys due to the oversupply, and hence they will be receiving a reduced income. The effect of this is that the families of these drivers will be finding it harder to live, due to the low incomes they are likely to be earning over long hours. Although the fares are high, if drivers are only receive a few of these in a shift, once they remove their operating costs they will be receiving very little profit (Tait, 2014b). This could be an additional contributing factor to why taxi fares are so high.
Overall it seems that the deregulation of the...