Taxicab Regulation and the Evolution of Communication Technology: the Tale of Three Cities

Taxicab Regulation and the Evolution of Communication Technology: the Tale of Three Cities





The taxi market is one of the most widely and heavily regulated in developed countries. The reason is that the adjustment between supply and demand in this market is a very complex mechanism which leads naturally to over capacities, high prices and which, moreover, generates externalities such as congestion, pollution, etc.

However, these failures, like most market failures, are conditioned by the state of the technology. In the case of the taxi trade, most regulatory systems set to compensate these failures have in fact solidified the system and prevented it to adjust to new technology developments.

Our research has compared the contrasting way by which three major metropolises, i.e. New York, London and Paris, have adjusted their regulatory framework of the taxi trade to accommodate the technological developments of telecommunications (telephone, GPS, etc).

Since the mid sixties, London and New York have allowed the development of (lightly regulated) "for hire" services ordered by telephone when Paris has successfully dwarfed them. However, New York has banned regular taxis from this market, whereas London has allowed taxis to compete with for hire services on the phone-booked or radio-dispatch taxi market.

In the market for taxis that are hailed from the street (the hailed taxi or cruising market) New York and Paris have kept the total fleet size almost unchanged over the last forty years whereas London has roughly quadrupled it.

These contrasting policies produced contrasting results. In New York and in London, the large and diversified supply of taxi and for hire services attends a wide part of the population, including non-motorized households and residents of poor neighborhoods. This has been documented in various publications. We have carried out a survey to produce comparable figures for Paris. They show that taxi services in the Paris metropolitan area are de facto restricted to the richer part of the population and the richest neighborhoods.

In Paris, the regulator has supported the emergence of a few large companies besides a large sector of owner-operators. Since the supply of taxi services is much bellow demand, these big firms could invest their rents in sophisticated technology to reduce their costs of empty runs and waiting times. Although fares are fixed, they could sell additional subscriptions to priority services.

The diffusion of the modern techniques of communication, mobile telephony and Internet, offers to the regulator the opportunity of creating a new market of transport by taxi in which competition can play fully. We discuss systems of regulation adapted to the new conditions of technology and their possible outcomes.


Association for European Transport