Description of Taxi service market structure in NSW
In this description, it is important to note that the taxi service plays a pivotal role in the transport industry in the NSW. It complements various other means of transport offered for the members of the public in the NSW region. The convenience of their almost spontaneous response and their ability to deliver door to door service to the public makes them very convenient (Abelson, 2008). The market in NSW is characterized by free entry into the market with the government only intervening in licensing of the taxis. According to the review of entry strategy to the market adopted by the government in 2009, the market is characterized by an unlimited number of entries as long as the potential taxi service provider is willing to pay the fee set by the government for licensing.
This description will entail various aspects of market structure including the type of entry into the market, regulations as well as the stakeholders in the industry. The report will also venture into an analysis of the benefits associated with this type of market structure. This analysis will also delve into description of the efficiency that the various stakeholders involved in the business enjoy. A keen focus will be drawn to the benefits enjoyed by the customers as well as the government. In doing this, the level of customer satisfaction in terms of level of fare charged, duration of response and the time taken for the taxi drives to respond will be analyzed. The effects of government regulation will also be analyzed with respect to the benefit the government enjoys by being in the business. Evidence of existence of such a market structure in other parts of the world will also be provided. In the presentation of this evidence, comparison will be made between the effect of the market structure in other places and the impacts experienced in NSW. Lastly, the report will present an analysis of the benefits associated with allowing greater competition in the taxi service industry.
This report is limited to description and analysis of the effects of the market structure of the taxi service in NSW. It does not delve into other factors that affect the taxi service business such us the manufacturing of the taxi vehicles and the like. Moreover, the report does not go into the deeper details of the operation of the service among the business involved in the taxi business. Rather, it sticks to the market structure and the impacts of such kind of market structure.
Figure 1.'The High Cost of Taxi Regulation, with Special Reference to Sydney' in Agenda, Volume 17, Number 2, 2010 by Edited by William Coleman | ANU Press", 2016
The figure one above shows the major players in the taxi industry. The role of the regulator is to ensure that all the other stakeholders function effectively for the benefit of the public. It is clear that the regulator has offered free market entry. There are 3600 out of these174 licenses available. This means that as long as one pay for the license fee, the market is free. This creates room for other players known as the license leasing companies.
Among the accredited taxi operators, only 20% operate with owned licenses, 80% of the operators get into the market through the use of leased licenses.
As indicated in the figure 1.2, following this introduction of the free entry market structure, the year 2011/2012 saw the number of taxis rise by 215 new taxis and 30 replacements of the licenses and 1 renewal. This amounted to a 3.9% increase of the number of taxis (Diamond, 2009). These reviews of 2009 report have been of critical importance to the growth of the taxi industry in NSW. According to the website report of the regulating body, the body states that it is ready to issue silence plates. This underpins the fact that the market entry is free thus fostering competition.
Results of free market Entry
Figure 2.2 Comparison of total passenger arrival and departure
Figure 2. (http://www.newcastleairport.com.au, 2016)
The figure above indicates the increase of more operators in the taxi business has led to increase in the number of clients in need of the taxi services.
In this market structure, the government does regulate the fares each year. While this may be challenged as a limitation to the freedom of the market, it is of critical benefits as it ensures that the public benefit from the taxi services and that the competitors engage in competition on a level ground. This tends to eradicate unhealthy competition which would wind up afflicting the public, shove other competitors out of the market. Such repercussion would have terrible impacts on the taxi service business in NSW. As a result of the regulation, the government ensures that all the stakeholders as well as the public benefit.
The annual market analysis reports are used to make recommendations on the models that would see to it that the weightings owing to driver cost and operator cost are considered with respect to the appropriateness of the distribution of each and every component.
(2). Welfare Implication of the NSW Taxi service Market Structure
The free entry market structure with the regulation of the fares for the peak and off-peak seasons creates a free and competitive market. This market structure has positive implication of the government, the public and the operators as well as the employees working in the taxi industry in NSW.
Taxi deregulation led to cost benefits in the business as illustrated below.
Figure 3depicts a dual supply and demand that applies at unit cost (Press.anu.edu.au, 2016).
D1represents the demand for taxi while Q1 represents the number of trips made. When the market structure is open, the fare charged by the taxis under competition falls from S1 to S2. On the other hand, the demand curve tends to shift from D1 to D2. Due to these shifts, the new consumer gains surpluses indicated by (B+C+D). As such, a new user in the taxi business is entitled to benefit from the deregulation of the business. Hence, the gross benefit to deregulation of the taxi business for the user is (A+D) while that of the new user is (B+C) as a result. The gross benefit to a new user is (A+B+C+D). Though the fall of the fare in the area D is a shortfall for the owner, the social net advantage is representing by (A+B+C).
Evidence of Open Entry market structure in Taxi business in Australia
Though there are similarities in the characteristics of the market structure in Australia, a typical market as the one in NSW does not exist. Unlike NSW where the entry into the market is free, entry into the market in Australia is restricted. Secondly, though, the allocation of license has remained free in Australia, the government is slowly borrowing from the NSW model.
(4). A case study of Uber showing the importance of an open market in taxi industry
At the point when a cutoff is put upon the quantity of taxis working in a city, customers of taxi administrations have less administration suppliers from which to pick. This may prompt higher costs and poorer nature of administration, including long holding up times, unkempt autos, and upsetting administration from drivers. Taxis might be especially hard to acquire at certain seasons of popularity, including night times and weekends, or times of awful climate. Administrative limitations additionally decrease the motivating forces of taxi organizations and drivers to discover creative approaches to enhance administration for travellers. While regions have sanctioned directions to address these troubles, including endorsed rates and quality principles, the cost and nature of taxi administration has been the subject of various grumblings from travellers throughout the years.
Following quite a while of generally little change, as of late, new innovations have allowed the improvement of inventive stages and programming applications that empower ride-sharing by their clients (Santos & Xavier, 2015). The applications equate travellers with standard drivers that don't hold taxi licenses and work their own private vehicles outside of existing controls. Suppliers of these ride‑sharing applications, which incorporate organizations, for example, Uber and Lyft, are by and large alluded to in America as purviews as Transportation Network Companies (Lee, Wu, & Sun, 2013). These companies frame part of the developing sharing economy, in which friend-to-friend stages interface individuals who claim certain products or aptitudes with those that desire to make utilization of them. Similarly as with numerous sharing economy plans of action, platforms such as Uber for the most part utilize reputational positioning frameworks that permit travellers and drivers to rate each other after a ride.
Two of the most important factors that liberalisation of the taxi business allows for are lower costs and increased accessibility while the holding up time is reduced (Jericho, 2016). Transportation Network Companies offer rates that can be significantly lower than the controlled rates forced by civil governments. Cabbies in a few urban communities have reported that they are encountering challenges drawing in shoppers because of the low rates charged by Uber drivers.
As costs charged by TNC drivers are not controlled, they may essentially increment amid times of demand, for example, night times and weekends, extraordinary occasions or unfriendly climate conditions (Blanton & Peksen, 2016). With accessibility and hold up times, Transportation Network Companies may decrease sitting tight times for clients contrasted with customary taxis because of various elements. These incorporate an expansion in the accessibility of vehicles for contract, enhanced dispatching frameworks, and conceivably more prominent motivations for Transportation Network Companies drivers to give brief administration to guarantee that they get high appraisals from travellers (Bähre, 2014). They may likewise advantage people who live in distant districts of a region. Some studies have reported that, when the quantity of taxis in a city is restricted, drivers may decide to a great extent stay in the high-volume downtown territories, leaving more remote ranges of the region under-served. By expanding the quantity of vehicles out and about, Transportation Network Companies can have individuals living in remote ranges get help at sensible costs with shorter postponements.
Comfort is another factor that comes with liberalisation of the taxi business. The product applications utilized by increase in the number of taxis such as the situation created by Uber offer various helpful elements to shoppers, including the capacity to see what vehicles are accessible in their neighbourhood track a vehicle progressively once a ride has been asked (Chalkley & Stewart, 2011). Buyers additionally value the programmed instalment technique utilized by the vehicles, instead of having to physically pay through money or instalment card.
References
Abelson, P., 2008, Public Economics, Principles and Practice, 2nded. McGraw-Hill, Sydney.
Diamond, P. 2009, ‘A model of price adjustment’, Journal of Economic Theory, 3, 156-68.
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BLANTON, R. & PEKSEN, D. (2016). Economic liberalisation, market institutions and labour rights. European Journal of Political Research, n/a-n/a. http://dx.doi.org/10.1111/1475-6765.12137
Chalkley, M. & Stewart, G. (2011). Trade Liberalisation, Market Structure and the Incentive to Merge. The World Economy, no-no. http://dx.doi.org/10.1111/j.1467-9701.2010.01325.x
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Jericho, G. (2016). The dark side of Uber: why the sharing economy needs tougher rules | Greg Jericho. The Guardian. Retrieved 2 May 2016, from http://www.theguardian.com/business/grogonomics/2016/apr/18/uber-airbnb-sharing-economy-tougher-rules-australia
Lee, D., Wu, X., & Sun, L. (2013). Limited Information-Sharing Strategy for Taxi-Customer Searching Problem in Nonbooking Taxi Service. Transportation Research Record: Journal of the Transportation Research Board, 2333, 46-54. http://dx.doi.org/10.3141/2333-06
Lin, Y., Li, W., Qiu, F., & Xu, H. (2012). Research on Optimization of Vehicle Routing Problem for Ride-sharing Taxi. Procedia - Social and Behavioral Sciences, 43, 494-502. http://dx.doi.org/10.1016/j.sbspro.2012.04.122
Press.anu.edu.au,. (2016). 'The High Cost of Taxi Regulation, with Special Reference to Sydney' in Agenda, Volume 17, Number 2, 2010 by Edited by William Coleman | ANU Press. Press.anu.edu.au. Retrieved 3 May 2016, from http://press.anu.edu.au/apps/bookworm/view/Agenda,+Volume+17,+Number+2,+2010/6691/abelson.xhtml
Santos, D. & Xavier, E. (2015). Taxi and Ride Sharing: A Dynamic Dial-a-Ride Problem with Money as an Incentive. Expert Systems with Applications, 42(19), 6728-6737. http://dx.doi.org/10.1016/j.eswa.2015.04.060
'The High Cost of Taxi Regulation, with Special Reference to Sydney' in Agenda, Volume 17, Number 2, 2010 by Edited by William Coleman | ANU Press. (2016). Press.anu.edu.au. Retrieved 3 May 2016, from http://press.anu.edu.au/apps/bookworm/view/Agenda,+Volume+17,+Number+2,+2010/6691/abelson.xhtml
