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Regulation or Deregulation?

Entry Controls in Taxi Regulation

Entry Controls in Taxi Regulation: Implications of US and Canadian experience for taxi regulation and deregulation

Published in Transport Policy 12 (2007) 490-506.

Should taxi regulators adopt "open entry"? What are the effects of open entry, medallion caps and other types of entry control? What is the most effective regulatory approach?

This paper assesses these issues based on the experiences of 43 communities in the United States and Canada. The analysis shows that without entry controls, the cab stand and street hail market experiences an oversupply of cabs, leading to deterioration of vehicle and driver quality. Applied to the dispatch market, however, entry restrictions often lead to deficiencies in taxicab availability.

A major challenge for officials charged with regulating taxi entry is to reconcile the disparate needs of dispatch and cab stand/street hail markets, particularly in places with substantial trip volumes in both markets. Approaches to this challenge include two-tier systems, flexible forms of entry control, company-level entry qualifications, geographic restrictions and service requirements. These approaches and implications for regulation are discussed.

Summary of findings:

1. Numerical limits are essential in cities with a large number of trips obtained at cab stands and by street hail. Examples of such markets include airport cab stands and dense downtowns in New York, Chicago, San Francisco, Boston, Toronto and other major cities. Without numerical limits, cities have experienced oversupply of cabs that leads to deterioration in driver and vehicle quality.

2. Communities with a predominance of telephone order (dispatch) trips and few if any cab stand trips typically authorize cab companies to operate a specific number of cabs. This number may be set by regulation, in which case it needs to be adjusted regularly if demand for cab service is growing. Companies may also be given flexibility in adjusting the number of cabs they operate and may be allowed to add (or subtract) cabs from their fleets without regulatory approval.

3. Cities with a mix of dispatch and cab stand/street hail trips generally limit entry, in order to prevent oversupply of cabs (see #1 above).

These cities often experience shortfalls in service in outlying areas, however, as cabs cluster in active downtown and airport cab stand/street hail markets. To achieve geographic balance in service levels, cities may adopt:

  • Geographic restrictions, such as cabs not allowed to pick up in the Las Vegas "Strip", or franchise zones used in Los Angeles. (Other examples: Miami, Chicago, Orange County/Anaheim, and airport restrictions in Orlando, Ottawa, Toronto, San Jose, Seattle, San Diego, St. Louis.)
  • Service requirements, such as companies or drivers required to serve a certain number of trips in underserved areas. (Example: Chicago.)
  • Two-tier industry structures, in which separately licensed industries are authorized for cab stands/street hails and for dispatch. The number of cabs authorized for stand/hail work is regulated; the number of vehicles operated by companies licensed for dispatch only may or may not be regulated. (Examples of two-tier industries are New York City, Newark and London.)
Effectiveness of these measures are discussed in more detail in the full paper.

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