Thursday, January 20, 2011

Grappling with regulation

Over the past few weeks I have been trying to gather my thoughts about potential taxi regulation in Tucson. I have been doing research into regulation in other markets, trying to be objective about the issues locally, and grappling with the concept of free markets versus regulation and how all parties - drivers, passengers, cab companies and local governments, are impacted by regulation and market forces.

An article in the Denver Daily  today outlines the efforts of a new cab company to enter the Denver market, and the introduction of legislation to lower the barriers of entry into the marketplace. As I consider this article, and the situation in Tucson, I am compelled to ask a few questions:

  • can the Denver metro area sustain 150 additional cabs? is the demand for taxis growing, or will it be divided into smaller parts?
  • the passenger may benefit by lower fares, but will drivers' wages shrink as well?
  • will increased capacity cause cab companies to compete for drivers, shrinking their profits and driving cost cutting measures that may impact service quality and public safety?
As I look at our situation in Tucson, as an independent contract driver for Yellow Cab, I am torn between the entrepreneurial opportunities that the virtual lack of regulation provides, and the abuses that the same lack of regulation allows. In other words, we have a free market system in Tucson, but what has resulted?

  • in the past 3 years taxi capacity has increased from 200 cabs to about 450
  • the median fare hasn't decreased but has gone up, as most of the independents (those cab companies other that Yellow, Discount and VIP) charge 33% per mile more than the larger fleets
  • driver earnings have decreased significantly due to lease increases, fewer rides (due to the economy and increased capacity), increased gas prices, and the economy
  • customer service has diminished as drivers avoid short fares, certain regions of the city, and certain times of the day due to lack of incentive to wait long periods between fares
  • driver behavior has become more of an issue as they compete for the fewer fares available (this is compounded by the fact that there are not cab stands in Tucson, especially at popular venues, so that there are no orderly queues that assign the next driver up)
  • abuse of drivers by the larger fleets without any recourse available to the drivers
  • taxis on the street without insurance and in poor operating condition as cab companies take shortcuts to prop up profits
  • drivers with poor customer services skills, lack of knowledge about the metro region, and no drug or background screening
Don't get me wrong - as a Yellow Cab driver that is considering going completely independent, an environment that is free of regulatory constraints is pretty inviting. On the other hand, the lack of barriers to entry and any recourse to correct deficiencies in the market are a detriment to protecting one's ability to sustain a profitable business against predatory practices that aren't really good for any of the parties involved. For instance, I would take issue with Mile High Cab's intent to go to market with lower fares - it's the same rate we use in Tucson now - it's going to be tough for any driver to make a decent wage without working 80 hours a week. Lower fares will only result in those drivers looking for longer fares and avoiding short rides and regions of the city that don't generate many rides - as is happening in Tucson.

So my immediate take on Senator Ted Harvey's efforts to open the market in Denver is that it will not lead to a fair playing field, nor will the market balance itself out. Rather, it will lead to overcapacity, poor customer service, higher fares, smaller driver earnings, and driver abuse. I would recommend that the powers to be look at all issues carefully before they loosen regulation considerably and perhaps irreversibly. And as Tucson considers regulation, we should do so step by step, without creating unnecessary bureaucracy or hindering sustainable entrepreneurialism.

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