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Indianapolis Deregulation of its Taxicab Industry

Synopsis:Indianapolis deregulated its taxi and ground transportation industry to make it more competitive, more efficient, and a greater source of economic opportunity. Taxi fares have dropped for new market entrants, service has improved, and the number of taxi companies has nearly tripled.

Indianapolis extensively regulated the taxicab industry. Taxi cruising was prohibited, making it nearly impossible to hail a cab in the city. Passengers had to go to a designated cab stand or call for a taxi. This situation was not only inconvenient for the customers, but it also inhibited competition. Since the only practical way to get a taxi was to call one, only those taxi companies that could afford dispatch systems could compete. Further, residents who most needed the service were often denied access because they lived in low income or high crime areas. Minorities were especially hard hit.

Taxi cab licenses were severely restricted. One company owned 201 of the 392 licenses available. The top three companies controlled over three-quarters of all licensed cabs. Certain forms of ground transportation were also not allowed. The restrictions clearly favored large taxicab companies. The absence of price competition also led to high fares. The taxi fares in Indianapolis were the sixth most expensive in a group covering the nation's ten largest cities and the midwest's ten biggest cities.

After examining these restrictions on the city's ground transportation industry, the Regulatory Study Commission recommended a modified form of regulated competition in order to promote competition. Minority groups were highly supportive. The Indianapolis Urban League, the Hoosier Minority Chamber of Commerce, and The Indianapolis Recorder in an editorial entitled "Taxi cab monopoly means poor service" all came out in favor of the measure. One cab driver who dreamed of starting his own company appealed, "All I want the City-County Council to do is to stop denying me the chance to see what I can do." The City-County Council overwhelmingly voted to approve the proposal.

Since July 1, 1994 the ground transportation market has changed dramatically -- and for the better. Eliminated are the cap on taxi licenses, the floor on fares, the prohibition on cruising, and operational requirements that posed artificial barriers to entry into the ground transportation market. For example, it is no longer necessary for transportation services of every company to be available every hour of the day. In addition, license fees and mandatory liability insurance coverage were reduced to reasonable levels.

The adopted proposal also allows for the creation of "public vehicles for hire" including jitneys (small buses which transport passengers along a given route), wheelchair-accessible vans, mini-vans, and station wagons. Previously the handicapped had to rely on public transportation to travel in the city -- travel that has fixed schedules, follows only fixed routes, and does not respond to spontaneous requests. Jitney and limousine companies outside the county can now be licensed to operate here.

Deregulation, however, does not jeopardize customer safety. Now, unlike before, those who have been convicted of violent felonies may not get taxi licenses. Vehicle inspections, which used to be at three set times a year, now take place from two to five times a year, depending upon customer complaints. Surprise inspections are also now standard procedure.

The impact on the industry is striking. After a year the number of taxi companies has nearly tripled from 27 to 74. Most own one or two cabs. Economic opportunity has clearly opened up. Minority business entrepreneurs have opportunities to compete that would not have existed without deregulation. Over three-fourths of these new companies are minority-owned or owned by women. Nearly all of the new taxi owners are former drivers who had longed to own their own business.

The pick-up fares for new entrants are 12% below those of the three major companies. Their rate for the first mile is 7% less, and their average mileage rate is 3% less. The new entrepreneurs are innovative and drive safe, cleaner, and newer taxis. Waiting times have dropped significantly. The drivers are more courteous and have gone from wearing ripped tee-shirts to collars and ties. Most of the new companies belong to two cooperatives, started after deregulation, to pool costs and dispatch operations in order to compete more effectively.

Opportunities have opened up not only for taxi cab operators and entrepreneurs. One jitney company was founded to transport inner-city welfare recipients to jobs in a neighboring county.

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