More On Mile High Cab And Taxi Competition

Susan Greene of the Denver Post has a column out today on the Mile High Cab saga that covers some points similar to those I made previously here and here.  She makes an additional point that I did not previously cover that I would like to now address:

There are legitimate reasons to regulate the taxi industry. We want to make sure rates are fair, meters are accurate and we’re not going to be picked up by felons with no insurance who charge 2 miles for every mile driven.

In general, I agree.  I am not anti-regulation, per se, though I do prefer that regulatory burdens be light.  I am primarily against certain kinds of regulation. 

The Mile High Cab case provides an excellent example of good versus bad regulation (in general terms). 

Good regulation seeks to ensure the safety and welfare of person who are not in a position to have sufficient information to make such determinations on their own.  Bad regulation attempts to determine who will be the winners and losers in the market, or to determine who may even enter the market.

A taxi customer does not have a reasonable opportunity to inspect an individual cab to ensure that its brakes have been adequately maintained, for example.  Nor does the customer have the ability to do a background check on the driver before getting into the cab and a potentially dangerous situation.  And it is not possible for the individual customer to know whether a cab carries adequate insurance.  These things can and should be the subject of regulation.

Moreover, taxis are historically notorious for driving extra distances to increase fares for those who are in unfamiliar territory.  Having a regulatory body that requires the use of meters and punishes unreasonable practices intended to drive up the cost of a fare — such as taking a longer route than necessary — is another good thing.

I probably start to part ways with Ms. Greene when she wants “to make sure rates are fair.”  I prefer using competition to set rates rather than having a utilities commission interfere in the market.  But taxis are a bit different, in that one often hails a cab on the street and may not know the rates being charged until it is more or less too late.  So I could probably be convinced that a cap or some other limitation is an appropriate use of regulatory power.

But then there is clearly bad regulation from a public policy point of view, as illustrated by the Mile High Cab situation.  Mile High just wants to compete by charging $0.25/mile less than current providers, and by eliminating extra passenger or bag charges. 

Using myself as an example, this would save me a fair amount.  My wife and I probably take cabs to and from downtown twice a week on average.  On the outbound leg, we call a cab by phone; to get home, we hail one on the street.

Each trip currently costs about $10 one-way before tip.  Under Mile High’s proposed rate structure, we would save $1 off the top (extra passenger fee), and another $1.00 or so on the meter, each direction.  For such a short trip, 20% off is pretty decent savings.

Of course, Mile High Cab might not make it at those rates and fail, or it might need to increase rates to stay in business.  Maybe competitors would lose business and have to match Mile High’s rates, or some competitors might go under. 

That’s called competition.  And competition is the only reliable way to figure out what services consumers really want, what amount consumers will pay, and who should get to provide them.  Regulators simply cannot make this determination reliably.  Ever. 

So they should stop trying.

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Published in: on September 17, 2010 at 1:56 pm  Leave a Comment  

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