Could deregulation of the taxi industry lead to surge pricing in cabs?

UBER has changed the way we pay to get places, and not always for the better. Now taxis could follow their rival’s lead.

EVERYONE loves a free market, until it starts costing them big bucks.

Extraordinary fares charged by ride sharing company Uber during the holiday period have shocked even some of the sharing economy’s most loyal supporters.

One Blacktown passenger was charged more than $700 for her ride home on New Year’s Eve, while reports overseas have cited fares into the thousands.

The high fares — a product of Uber’s demand-based “dynamic pricing” model where users are charged more during high demand periods, and comparatively less when it’s slow — have sparked outrage and threats from users to revert to using old fashioned, government-regulated cabs.

But with governments beginning to loosen their regulatory grips on the once-monopolised taxi industry to allow them to compete with new players, there are fears taxi companies could be inspired to adopt similar pricing systems.

The NSW Government has already repealed more than 50 regulatory measures for taxi companies and has plans in place to “substantially deregulate” fares for booked taxi service “to bring them into line with other booked services” later this year. One of these changes is doing away with government regulated maximum fares for booked taxis.

In a statement to news.com.au, a spokesman for Transport for NSW said: “Like current hire cars and tourist services, fares for all booked services (including in taxis) will not be regulated. This means companies will be able to set their own fares for booked trips.”

The changes, to be introduced in 2016 following an awareness campaign for customers, come as part of a review of the industry in response to the entry of new players in the point-to-point transport market like Uber.

The review recommended the taxi industry “should be able to set their own fares for booked services so that they can compete on price with other booked service providers”. In response, the government is stripping back its control over taxi fare pricing to “allow greater competition in the booked market” and give customers “much greater choice about which booked services they wish to use”.

The changes apply only to pre-booked taxis, with cabs caught from a rank or hailed in the street still having to comply with the regulated maximum cost. But with the industry so significantly disrupted by its new competitors, economists are predicting these changes are just the beginning.

Pre-booked taxis in New South Wales will soon be allowed to set their own fares, and decide like Uber when they want to charge higher rates.

RMIT University professor of economics Sinclair Davidson tells news.com.au the next few years will bring a “frenzy” of deregulation, re-regulation, with changes to taxi fares are inevitable.

“The issue the taxi industry has always faced is creating an incentive to be on the road 24 hours when nobody wants to be out working,” he says.

“In the past that has been solved by loading taxis up with lots of debt — they have to pay lots of money for a licence and vehicle, so once they’ve laid out so much for it they’ve got to make sure they stay in business. The debt ensures the taxi is on the road at 2am because the driver needs the business.

“Uber doesn’t do that. When it needs lots of drivers on the road, it makes the fares higher, so that’s the driver’s incentive. What the taxi industry is going to have to deal with going forward is the trade-offs between the two systems.”

While taxis are still heavily regulated in what they can charge, deregulation like in NSW is paving the way for a market where companies will be able to set their own prices, Prof. Davidson predicts, and it may even see them adopting the surge-pricing model.

“They should be able to set their prices and they should be able to be competitive. Of course taxis will want to charge more if they can, so when they have more freedom to, of course they will do that,” he says.

The taxi industry is undergoing changes in order to survive, including to its prices. Picture: Jason Edwards

Though the incentives might be there, the NSW Taxi Council says it is strongly against surge pricing for taxis and would not support its introduction by any taxi companies keen to pick it up.

Taxi Council CEO Roy Wakelin-King tells news.com.au taxi companies currently don’t have the ability to jack up their prices, and if they ever did, there would be pressure on them to be responsible with their pricing.

“Are we going to see taxis engaging in the same sort of behaviour we saw from Uber over New Year ’s Eve? We strongly oppose what has happened over the New Year ’s Eve period, and we just believe it’s been obscene. There have been situations where people have been charged prices where they could have been flown to LA,” he says.

“While the notion of dynamic pricing is understood in a competitive environment there is a very important social responsibility that organisations need to consider when setting pricing policy.”

Mr Wakelin-King said it was important to remember that taxis form part of the public transport framework, and would always be bound by its responsibility to make taxi travel affordable.

“There is higher pricing in peak periods for taxi but it’s what I would call modest, and that’s not dissimilar to travel on trains when you have higher pricing in busier periods. What’s led to interest in what’s happened over New Year’s Eve is where people have been taken advantage of, and as a fundamental position we do not support that.”

If taxi drivers are allowed to charge more to compete with Uber’s surge pricing, there’s every chance they will.

Mr Wakelin-King said should further deregulatory measures be approved by parliament, the Taxi Council would be taking a strong and sensible approach in guiding taxi companies.

“They will need to set their own prices in accordance with their own business strategies, but we will recognise our corporate social responsibility, to make sure taxis are affordable and make sure people are aware what the likely cost will be.”

In its response to the government’s proposal for reform in the point-to-point transport industry, including its repeal of regulations, the NSW Taxi Council said it supported the reforms that allows the industry to compete on “a genuine level playing field” and “improve customer outcomes, not lessen them”.

While changes are introduced in New South Wales, state governments in Victoria, Western Australia and South Australia have begun reviewing and proposing changes to regulation on the taxi industry.

Prof. Davidson, who is also a senior research fellow at liberal think tank the Institute of Public Affairs, says deregulation for taxis will eventually allow the industry to “sort itself out”.

“Mistakes will be made and decision will be changed, but after a lot of activity in the space in the next few years at the end of it all we’ll have more people working and we’ll have better services and better pricing,” he says.

“There might be some higher prices, but it will be fairer.”

Originally published as Could deregulation of the taxi industry lead to surge pricing in cabs?