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An Economic Analysis of
Taxicab Regulation in Portland, Oregon

John W. Boroski
Gerard C.S. Mildner,
Portland State University
April, 1998

Executive Summary

Recent changes to Portland's taxicab regulations and the City's apparent willingness to allow two new taxicab companies to enter the market unfortunately do not address more structural problems within the industry. An analysis of the City Code reveals a host of other measures which are laden with anti-competitive intent.

This study finds that Portland's taxicab regulations and administration do not actually support the overall goal of the regulations, which is to promote competition within the industry and to allow the industry to operate without undo restraint. Restrictions on entry, minimum service requirements, and prohibition of independent operators do not increase economic efficiency, and instead are directed to protecting the industry from competition. In addition, tolerance of "first-in, first-out" queues at taxicab stands effectively prohibits competition. In creating a highly concentrated industry with little incentive or opportunity to compete, the City has actually caused the problems that give rise to other regulations. Because of regulations that restrict entry, increase waiting times, and raise fares, the number of taxicab trips taken in Portland is inefficiently low. Because of regulations that inhibit ride sharing, increase trips without return fares (or "deadheading"), and increase the time that drivers spend waiting in queues, the cost of producing taxicab trips is unnecessarily high. Finally, a lack of effective competition has created shortages of certain types of service (e.g. short trips) and stifled innovation. As a result, these regulations have reduced industry employment and have transferred wealth from consumers to entrenched taxicab companies, with a disproportionate impact falling on the poor.

This study recommends that regulations that restrict entry, establish minimum service requirements, and prohibit independent operators be removed from the Code. In addition, this study proposes that a system of property rights be established in the taxicab industry to replace first-in first-out taxicab queues. Taxicab companies should be required to lease curb space from the City, which is currently given away for free. Each stand would be reserved for the exclusive use of the controlling company or association. These zones would be auctioned off, allowing firms with knowledge of local market opportunities to bid for sites in those areas, with the highest bidders getting access to the curbspace. In this case, zones might not only include the curb, but might also include some adjoining space on the sidewalk to create a "taxi-stop" for the taxicab company. The holder of the taxi-stop rights would have an incentive to advertise its location and its company service. Independent cab owners would also be allowed to form associations to lease and manage curb space. As taxicab companies in Portland have historically resisted attempts to make them compete as distinct fleets, this system of property rights, combined with an open entry policy, would make industry service more innovative and dynamic.

Similarly, this study proposes that taxicabs be required to lease curb and counter space at Portland International Airport. To ensure competition, the Port of Portland could establish five or more counter areas and curb areas which would be auctioned off to the highest bidders. Again, independent taxicabs would be allowed to pool their resources to lease space. Depending on logistical constraints, some curb area near the retail counters could be reserved for each company to facilitate quick boarding, or perhaps a shuttle would carry passengers to a secondary boarding area, as is currently done with rental cars.

Removing entry barriers and introducing property rights would create a framework whereby price competition becomes workable, eliminating the need to regulate rates. To facilitate fare comparisons, however, taxicab companies should be required to use some uniform measure such as the per-mile rate for distance- based fares. Rates would have to be posted on vehicles, but they would no longer have to be filed with the Taxicab Supervisor. Zonal fares, time of day premiums, and other fare mechanisms would also be permitted.

Under the proposed system, one which fosters true competition and self-regulation, the only requirements for market entry might be a valid drivers license, vehicle insurance and registration, and safety certification. Industry competition and self-regulation would avail the City from having to investigate complaints such as drivers having "grungy attire" and ensuring that lost and found items are recorded and handled correctly. Similarly, the City would not have to tell drivers to keep their cars clean, and not to use them to commit crimes. Instead, taxicab companies would have incentives to voluntarily provide information regarding fares, amenities, and accident records to groups like the Oregon Visitors Association, local business groups, senior citizen organizations, and the public in general.

This study does not call for more or "better" regulations. Instead, this paper argues that an improved taxicab market can arise by removing regulation and promoting competition. Elements of this proposal have been tested in places such as Indianapolis, Washington D.C., Denver, Phoenix, and other cities, where deregulation has revived local taxicab markets.

================ Boroski is a recent graduate of the Masters in Urban and Regional Planning Program. Mildner is an Assistant Professor of Urban Studies and Planning, and a Cascade Policy Institute Academic Advisor.

This paper analyzes the current regulatory framework governing paratransit operations in Portland, including regulations pertaining to taxicab and jitney operations. Based upon a review of the economic literature and a survey of taxicab markets and regulations in over 25 major US cities, the paper identifies changes to local regulations which would benefit the general consumer of taxicab services, complement other city planning goals, and enable publicly provided transit to operate more efficiently.

The authors wish to gratefully acknowledge the following individuals for their significant contributions to this study:

Tony Rufolo, Professor of Urban Studies and Planning, Portland State University
John Hamilton, Taxicab Supervisor, City of Portland
Mark McGrath, Library Information Specialist, Tri-Met

In addition, a debt of gratitude is owed to the survey respondents listed in the Appendix to this study.

Table of Contents

Why This Study is Timely
The Portland Taxicab Industry
Why Should Planners Care about Taxicabs?
Economic Analysis of Portland's Taxicab Regulations

Recommended Changes to Portland's Taxicab Regulations
Exhibit 1: Market Share of Three Largest Taxicab Companies
Exhibit 2: Comparison of Taxicab Rates
Appendix A: Taxicab Industry Contacts
Appendix B: Sample Survey
Appendix C: City of Portland Title 16 Definitions


This paper is a general study of taxicab regulation in Portland which looks at how traditional taxicab service may be expanded, and how new and improved services can develop. This paper does not directly evaluate the service that taxicab companies in Portland currently provide, but rather analyzes the effects of regulation upon service levels [1]. Indeed, most passengers probably find local taxicab rides to be moderately comfortable and not extraordinarily expensive, although not very easy to obtain. Nevertheless, many patrons can also cite experiences of dispatched taxicabs arriving very late or not arriving at all, having to tolerate discourteous drivers, and other problems. This study explores whether or not these are problems that consumers must learn to endure, and the degree to which these problems may be attributable to factors such as the taxicab regulations and restrictions on market entry.

This paper is organized into five sections. The opening section summarizes recent regulatory reform proposals to illustrate current paratransit and taxicab issues in Portland. The second section of the paper describes the Portland taxicab industry and the regulations that govern it. The third section identifies the expected economic benefits from regulatory change in light of current planning goals.

The fourth section of the paper is an economic analysis of Portland's taxicab regulations. In this section, specific City Code requirements are analyzed to determine whether they support the stated regulatory goals. Finally, the fifth section presents our recommended changes to the Code, along with a discussion of how taxicab reforms have fared in other cities.

In advocating deregulation, this paper argues that previous attempts at deregulation have encouraged destructive competition, and that constructive competition can be encouraged through market forces based on a system of property rights. Readers should notice that this system of property rights could also apply to large public transportation agencies, although total transit deregulation is not addressed specifically. In the short run, however, competition from private taxicabs could stimulate the kinds of efficiency gains and service reforms that would improve the overall financial performance of public transportation (Cervero, 1997).

Why This Study Is Timely

Several recent events have focused attention on the local paratransit and taxicab industry in particular, beginning with the partial closure this past fall of the Interstate Bridge connecting Vancouver, Washington and Portland, Oregon. While local public transportation agencies spent months devising plans to attract increased ridership, they were criticized for ignoring policies encouraging the participation of the private sector to provide much needed transit services (Solberg, 9/10/97). Critics, for instance, asked why carpools, jitneys, and informal carpools could not utilize the newly installed high occupancy vehicle lanes. In fact, such a market has formed in San Francisco, where commuters meet in formal gathering places to form spontaneous carpools to cross the tolled Golden Gate Bridge at a discount (Webber, 1994). While it may not be reasonable to expect commuters to change their driving habits under relatively short notice, local regulations in fact prohibit such ad-hoc ride sharing where a fare is charged. To some, prohibition of this type of entrepreneurship is troubling enough, assuming that most commuters already on the road logically choose to transport themselves in a safe vehicle and retain a valid drivers license because they are a safe driver. Also missing from the equation, however, were the local taxicab companies who are permitted to perform these ridesharing functions. Admittedly, the bridge closure was short in duration, making it difficult to assess the long run market for such services. Taken together, however, the complete lack of response by the private sector to a transportation emergency exposes a weakness in current transportation policies.

Not long after the bridge closure, Portland City Council reaffirmed a previous decision, over the objections of Portland's four taxicab companies, allowing shuttle vans and town cars to provide door-to-door shared-ride service to Portland International Airport. In the last two years, the number of town car companies has grown from four to 70, and the number of vehicles has increased from 25 to 167 (Oliver, 12/21/97). Although entry into the airport market is now relatively unrestricted [2], service standards and vehicle quality, however, are narrowly prescribed (enforceable by fines up to $500 per violation per day) to make direct competition with the taxicab industry impossible[3]) Nevertheless, for reasons explained later in this paper, the taxicab industry continues to lose existing and potential markets to these relatively unregulated entrepreneurs.

At the behest of the taxicab industry, City Council is now seeking a cooperative effort between the City, which regulates taxicabs, and the Port of Portland, which regulates ground transportation at the airport, to address "economic equity and public safety issues" for non-taxicab operations. In short, the taxicab industry would like to see the playing field leveled between regulated and non-regulated transportation modes. This paper argues that in choosing between more stringent regulation of the shuttle industry and deregulating the taxicab industry, further constraining shuttles and town cars (or luxury transportation) would be poor public policy. Just as the taxicab industry has failed to offer new services that customers obviously value, as demonstrated by the success of these new companies, heavily regulated shuttle and luxury transportation providers will also fail to discover and deliver innovative services.

Ironically, any further restrictions imposed on the shuttle and luxury transportation industries will surely be advertised as "self-regulation" (Rose, 1/9/98). Yet as ground transportation regulators are surely outside and not of these industries, codes which heavily prescribe service standards and prices cannot be considered the product of self-regulation. This intentionally obfuscates the fact that self-regulation only occurs in competitive industries, where the goal is to increase the industry's total market by elevating service standards. Establishing uniform prices within a highly concentrated industry, however, will create incentives for companies to increase their profits by cutting service, and nothing resembling self-regulation will result.

While the dispute between the taxicab industry and the shuttle industry continues, the local press has announced the triumph of competition in the taxicab industry (Parente, 11/13/97, 12/18/97). City Council has directed the Taxicab Board of Review to amend the Code which requires that new applicants show a "demonstrated need for additional taxicab services in the city that is not, or cannot be, accomplished by existing companies." Thus, after eliminating the italicized three words from the Code, the Taxicab Board was able to recommend admitting two new firms and 65 new taxicabs into the industry, the first new taxicab firms in 22 years. This decision is currently before the City Council. Despite the elimination of this blatantly protectionist language, however, recent "deregulation" is far from complete, as even a casual perusal of the Code reveals a host of other measures which may be subjectively administered, and which are laden with anti-competitive intent.

The Portland Taxicab Industry

In a prior attempt at comprehensive taxicab reform, the City designated Mr. James Allen to be the local "taxicab czar" for approximately one year (1978). Allen collected industry operational data (revenues, employment, trip information, etc.), reviewed the economic literature, interviewed industry experts from other cities, and solicited viewpoints from taxicab companies, city officials, taxicab drivers, and airport administrators among others (Allen, 1978). In his report, Allen provides an excellent account of problems in the industry, including: deficient service during peak periods and during inclement weather, limited incentives for competition among firms, poor compensation for drivers, an oversupply of airport service at the expense of inner city service, and a noticeable lack of innovative service generally. Unfortunately, Allen's final recommendation was to adopt a "wait and see" approach, advising that time be allowed to pass to see if conditions would somehow correct themselves. Twenty years later, the same problems continue to plague the industry.

The only important result of the Allen report was to simplify the administration of the taxicab regulations. Oversight of the local taxicab industry was previously conducted by the Bureau of Traffic Engineering, the City Attorney, the Chief of Police, and the Bureau of Business Licenses, whereas now the regulations are administered by a single Taxicab Supervisor. The functions of the Supervisor include:
1. Liaison between the industry and City Council;
2. Investigation of industry problems;
3. Investigation of public complaints;
4. Administration of issuing licenses;
5. Investigation of the feasibility of new or revised cab services;
6. Review of company financial and operational data;
7. Representation of the City regarding transportation policy changes which could affect the industry.

Any major revisions to the taxicab regulations must be approved by City Council in the form of an ordinance. In addition, the Taxicab Supervisor and the Taxicab Board of Review may each adopt administrative rules which interpret and apply the general purposes of these ordinances. The Supervisor serves as staff for the Taxicab Board of Review, whose voting members consist of:

A. Three members of the general public with no affiliation with any taxicab company;

B. The Manager of the Bureau of Licenses or an appropriate designee, the Traffic Engineer or an appropriate designee or alternate designee; and

C. Two other persons representing government agencies regulating or involving taxicab services.

Although City Council need not approve administrative rules, a public hearing must be held before any rule changes can be adopted.

Taxicabs in Portland provide approximately 2 million rides per year (Hamilton, 1996). In comparison, Tri-Met, the local public transportation agency, provides almost 67 million rides. The Port estimates that taxicabs transport 700 to 900 passengers daily to and from the airport during non-holiday periods and up to 1,200 rides during service peaks, constituting approximately 3.7 percent of ground trips (Cambridge Systematics, 1996; Nelson, 1997). Business travelers represent 63 percent of these taxicab users, whereas non-business, non-residents (e.g. tourists, visitors) constitute just under 15 percent of taxicab users. While non-resident business travelers utilize taxicabs and town cars almost equally, resident business travelers tend to prefer taxicabs (Cambridge Systematics, 1996). This suggests that town cars have captured a large segment of the airport market.

Taxicab service in Portland is currently provided by four companies with a combined fleet of 317 vehicles. The two largest fleets, Broadway Cab and Radio Cab, each operate 136 vehicles, while Portland Cab and New Rose City Cab operate 26 and 19 vehicles respectively. Currently, there is a minimum fleet size of 15 vehicles and no provision for independent taxicabs. The total fleet size has not changed since 1994 when 16 additional permits were granted, and City Council has consistently denied applications for new company permits (six denials out of six applications since 1985 (Hamilton, 1997d)). No new company has started operations in Portland since 1976 when Portland Cab was allowed to enter the market. While in the past prospective new companies could apply at any time, recent Code changes will identify a one-month window in which new and existing companies alike must apply for fleet expansions. This window will follow the publication of the Taxicab Supervisor's Biennial Demand Study. Under limited circumstances, a more informal demand study may be undertaken if it is deemed that a "crisis" has occurred which warrants immediate attention. Twenty percent of each fleet must be ADA accessible by July 1998, and fleets are required to provide dispatch service 24 hours a day.

Taxicabs in Portland charge $2.50 for the first 1/15th mile (the flag drop), $1.50 for each additional mile, and $20.00 per hour of waiting time[4]) Only one taxicab company does not charge these rates, the maximum allowable under the Code. Radio Cab charges a $2.00 flag drop, although this fact is not generally advertised. Approximately 70 percent of all taxicab trips originate by telephone dispatch, compared to 30 percent which originate from the airport or downtown taxicab stands (Entler, 1997). Probably less than one percent of all taxicab trips are street hails, the percentage estimated in 1978 by Allen. Finally, taxicabs are prohibited from soliciting passengers on the transit mall during day times, and those caught doing so are fined $165 by the police[5].

Why Should Planners Care about Taxicabs?

Planners frequently overlook the industry as a legitimate form of transit as taxicabs do not provide many shared rides, utilize vehicles similar to private automobiles (confusing "nonautomobility" with "nonautomobile"; Klein (1997)), and almost never fall within the purview of planning departments[6]. On the supply side, the low utilization rate of taxicabs and their relatively low market share of trips in most cities is largely due to local regulations which effectively prohibit entry of new firms, prohibit competition within the industry, give subsidies to public transit competitors, and limit the ability of transit agencies to contract out services to taxicab companies (Kirby, 1974; Klein, 1997; Cervero, 1997). Despite these obstacles, taxicabs constitute an $8 billion industry employing just over 300,000 people. In comparison, urban and suburban transit agencies collect $18 billion[7], and have employment of approximately 840,000 (US Statistical Abstract, 1996; Tables 966 and 1024). In deregulated markets such as Washington D.C., and in markets where illegal participants operate with relative impunity (Philadelphia, Los Angeles, and Miami, for instance), thousands of shared-ride taxis and jitneys provide convenient, low-priced, door-to-door service on a daily basis (Cervero, 1997).

Taxicabs, and paratransit more generally, effectively bridge the gap between private, single passenger automobiles - which cause too much congestion, waste travel time, and consume inordinate quantities of fuel - and public transit - which is overcrowded during peak periods, provides limited service during the off-peak, and operates on inflexible routes. The definition of paratransit is "...those forms of intraurban passenger transportation which are available to the public, are distinct from conventional transit (scheduled bus and rail), and can operate over the highway and street system" (Kirby, 1974). That "miniature transit" performs so well where it is allowed to is a function of its most salient features, which include: short trip times, reduced loading and unloading time, increased maneuverability in traffic, freedom from driving, avoidance of transfers and waiting time, door-to-door service, freedom from parking, route/time flexibility, reliability, comfort, seat availability, storage space, and personal security (Kirby, 1974; Klein, 1997, Cervero 1997). Since most studies continue to find that transit patrons value service improvements greater than fare reductions and that this preference is correlated with income (Cervero, 1997), one can assume that a society that continues to grow richer will over time show a preference for modes that offer amenities typically associated with the private automobile[8]. Therefore, a transit system which offers bona fide alternatives to scheduled, fixed route service is more likely to attract new transit riders by virtue of simply providing more choice.

Taxicabs can and do serve an extremely diverse clientele. The elderly, for instance, are often dependent upon others for their transportation needs and have limited finances, and they particularly value the comfort, door-to-door service, ease of getting in and out, and security offered by taxicabs. Low income residents and students may favor taxicabs and forgo the expense of owning and maintaining a private automobile.

Taxicab usage, however, is not limited to those with reduced financial resources. Professional and managerial workers use taxicabs to attend downtown meetings due to their high value of time. Similarly, upper income households may employ taxicabs to provide on-call, door-to-door, chauffeur-driven service on a part-time basis.

With appropriate deregulation, economists predict that taxicab service would expand, lower prices would result, differentiated services would be offered, and customer waiting time would be reduced. If true, planners may question how the benefits attributed to paratransit complement other city planning goals. To begin, taxicab service can mitigate perceived parking shortages in close-in shopping, entertainment, and restaurant districts, which are a prime focus for new development in current plans. Surprisingly, while the City continues to study the feasibility of adding parking meters, issuing resident parking permits, and other strategies in response to this issue, it has not seriously considered promoting paratransit and taxicab service. Secondly, taxicabs are well-suited to provide transit service in fast-growing low-density suburban jurisdictions that traditional transit serves poorly.

Returning to the subject of parking, parking demand in Northwest Portland, Lloyd District, and the Hawthorne District, for instance, is probably highest during the evening and weekend hours, exactly when public fixed-route transit begins to shut down. In other cities, evening and weekend trips to art and entertainment districts are well-served by taxicabs. In Portland, however, most taxicabs choose to serve the milk run between the downtown and airport. At the same time, thousands of new residents are expected in the River District and the North Macadam area under current plans for high density and mixed use development. While these new urbanites will reinforce the 18-hour activity pattern the City wishes to encourage, they will also exacerbate its parking headaches. Given a choice today between walking a half mile, waiting 25 minutes for a phone-dispatched taxicab, or driving, residents of the River District seeking to attend a downtown concert are most likely to drive. The high cost of parking a vehicle, however, and the lack of ready taxicab service will limit the development potential of these districts. Finally, the problem of evening alcohol consumption and auto driving can be mitigated by good taxicab service, as traditional transit is not cost effective during evenings. In fact, one study found that after deregulation, local taxicab utilization did increase due in part to stricter enforcement of drunk-driving laws (Taylor, 1989).

Due primarily to its relatively high cost of labor, Tri-Met is currently exploring alternatives to its new product line of agency owned and operated minibuses which serve low-density suburban jurisdictions. Nationally, labor costs as a percent of total transit operating costs have risen from 66% to 75% from 1960-1992, leading to a rise in operating costs per passenger trip of 175% (Klein, 1997). At the local level, Tri-Met has budgeted $35,946 for each regular full-time bus operator for its current fiscal year, a figure which grows to $50,180 after accounting for the value of benefits guaranteed under the union contract[9]. In comparison, the Oregon Employment Department estimates that taxicab drivers on average net between $6 and $11.50 per hour not including tips[10]. This data is consistent with figures provided by a long-time Radio Cab owner-driver, who estimates that the average owner-driver earns about $14 per hour after expenses including tips (Bussell, 1997). This higher estimate is equivalent to $29,344 per year, assuming that 2,096 hours are worked (the assumption made for Tri-Met full-time operators). Taxicab drivers, however, receive no fringe benefits of any kind, resulting in a total compensation package which is 42% less than that received by Tri-Met operators.

Recognizing these differentials, Tri-Met is seriously exploring ways in which new suburban transit service may be contracted to more efficient private paratransit providers. As stipulated in the union contract, Tri-Met is effectively prohibited from taking any actions that will have adverse effects on its pubic transit union employees. Thus the agency is prohibited from contracting out existing service, employing part-time workers for peak-periods, or reducing service in weak markets. One way to avoid these constraints, however, is to shelter revenue for new services in accounts separate from the general operating fund (Arrington, 1997).

Can this strategy produce substantial benefits? Various experiments around the country show that long term financial savings depend upon whether the contracted transit providers also become unionized, thereby driving up operating costs, and the nature of the contract and contracting process. Beginning in 1981, Tidewater Regional Transit (Norfolk, VA) began contracting out service along low-density corridors to private demand-responsive vans, despite protests and legal efforts by the local union (Cervero, 1997). Within two years, the agency was able to reduce its subsidy per passenger for these routes by 64 percent, and the union subsequently agree to reduce its guaranteed pay hours and create lower paid minibus driver positions with no work rules and fewer benefits. Effectively, the new paratransit division won back the contract. In another instance, Phoenix' transit authority contracted with a taxicab company to provide Sunday fixed-route bus services in the early 1980's, producing savings of over $700,000 in the first year. Finally, San Diego Transit's DART program has employed private, demand-responsive vans since 1982 to provide nearly 800 rides per day to the general public in five isolated communities, at substantial cost savings.

Tri-Met explored this strategy in the 1970's when it solicited bids to contract out its nighttime "Owl" service in Portland (Allen, 1978). When the taxicab companies submitted a joint proposal to provide service at the maximum allowable meter rate, however, the agency elected not to push forward in the face of union opposition, as no cost savings could be realized. Changes to the Code to promote competition, then, could simultaneously expand the taxicab market and help Tri-Met to reduce the cost of low-density suburban service. While this study does not focus on taxicab regulations in force outside of the City of Portland, this section also points to a more proactive role that Tri-Met could play in the evolution of transit, namely, encouraging reciprocal regulation (or deregulation) across jurisdictions so that a greater selection of potential providers exists, and passengers and drivers can take inter-jurisdictional trips without penalty.

Economic Analysis of Portland's Taxicab Regulations

In this section, the regulations which apply to Portland's taxicab industry are revisited in more detail to determine whether they actually support of the stated goals of the regulations. The Code states[11]:

A. The purpose of this Chapter is to provide for the safe, fair and efficient operation of taxicabs. The taxicab industry should be allowed to operate without unnecessary restraint. However, because taxicabs constitute an essential part of the City's transportation system and because transportation so fundamentally affects the City's well-being and that of its citizens, some regulation is necessary to insure that the public safety is protected, the public need provided, and the public convenience promoted.

B. The provisions contained herein should be applied and enforced in such a manner as to require the taxicab industry to:
1. Regulate itself, under City supervision;
2. Promote innovation and adaptation to changing needs; and to allow competition and response to the economic forces of the market place, so long as the public interest is served thereby.

This section is organized around the four broad types of regulation in the Code: market entry and franchise restrictions, service requirements, quality standards, and fare levels. For each type of regulation, market conditions and/or information problems which are thought to make regulation necessary are identified and analyzed. Incorporated into each analysis is a description of the actual outcomes of the regulations, including examples from a national survey of taxicab regulators and companies conducted by the authors. This survey was directed to taxicab regulators in the 20 largest US cities ranked by 1994 population in the 1996 Statistical Abstract of the United States. In addition, ten cities with 1994 population closest to that of Portland (ranked 30th) were included for comparison purposes[12]. For all deregulated cities, and for many regulated cities too, the largest taxicab companies were also contacted.

To conclude, transportation and tourism planners need to carefully examine the regulations which apply to their own local taxicab industry. If regulation is often industry-dominated and directed primarily to the industry's benefit as some observers contend (few producers being easily combined into special interest groups), planners can effectively represent the interests of customers who are too diverse and disorganized to speak for themselves.

Entry and Franchise Regulations

Taxicabs are typically regulated as "common carriers", meaning that they provide transportation services to the general public in return for compensation, and are required to serve everyone who is able to pay[13] (Cervero, 1997). As such, common carriers are often held to service standards, and in return are accorded some protection from competition through restrictive licensing criteria. Therefore, local taxicab industries are not "natural" monopolies, but may operate as a monopoly or cartel because of regulation. In Portland, prospective and existing taxicab companies have one month following the completion of the Taxicab Supervisor's Biennial Demand Study in which to apply for fleet expansions (permits). Some time later, usually one month, the Supervisor publishes his recommendations regarding these applications based on the following criteria (section 16.40.215.C):

1. The current status of the public transportation system in the City, including but not limited to:

a. The current and future ability of the public transportation system to provide the timely and effective movement of persons; and,

b. The ratio of population within the City of Portland to the number of taxicabs currently in operation.

2. The demonstrated need for additional taxicab service in the City that is not accomplished by existing companies, as shown by the applicant;

3. The present utilization patterns of taxicabs currently in operation;

4. The interests of the applicant in establishing a local business to legitimately serve the citizens of this City; and,

5. The extent to which granting the application will serve the purposes of this Chapter, as set out in Section 16.40.001.

These criteria collectively represent the "public convenience and necessity" standard by which most cities regulate entry into the taxicab market. The next step in the process requires that the Taxicab Board of Review, informed by the Supervisor's analysis, develop its own recommendation (through a voting process) to forward to City Council. Finally, regardless of the decision rendered by the Board, City Council ultimately decides the outcome based on findings that (Subsection D):

1. The applicant has established both fitness and ability to comply with the requirements of this Chapter;

2. After consideration of the factors listed in Subsection 16.40.215.C, that the interests of the City will be served thereby; and,

3. That the applicant has sufficient financial resources to be able to meet the minimum standards established by Section 16.40.510.

4. The permit may contain such terms or conditions as the Council deems appropriate.

In addition, Subsection E allows the Supervisor to "assist the Board and City Council in establishing such further standards as the Board or the Council deems appropriate, in addition to those listed in Subsection C." Of course, any decision to admit a new company can be and is appealed by the existing companies, as is the case in most cities. Finally, Section 16.40.210.B1 prohibits the transfer of licenses to independent operators; all operators must work under the management of one of the existing (approved) dispatch companies.

The latest demand study undertaken by the Supervisor analyzed population changes and projections for the city and region, statistics on elderly persons and persons with disabilities, Tri-met ridership figures, airport passenger counts, convention activity data, and current taxicab utilization patterns. Apparent in this study are many methodological problems, only a few of which are discussed here for purpose of illustration. To begin, the population figures considered do not account for changes in age, income, household type or occupation, all of which would affect demand for taxicab services. Ultimately, this analysis only calibrates the current ratio of taxicabs to population to the historical ratio, which is presumed to be "correct", thereby perpetuating the historic low level of taxicab service. Similarly, the transit data considered do not distinguish between where or when service is provided, nor its relationship to total trip-making behavior. Other factors that surely affect the demand for taxicab service, but which are not considered, include: land use patterns generally (i.e. the spatial distribution of economic activity), rates of automobile ownership, prices of alternative forms of transport (e.g. fuel, insurance, fares, etc.), parking availability and charges, and climate and topography[14]. Finally, in his analysis of convention activity, the Supervisor concedes that "The percentage of overall taxicab business derived from the Convention Center is unknown. Therefore it is difficult to discern the precise number of taxicabs required for new demand.", in reference to a projected 20% increase in convention activity for 1998. One can only wonder, then, how the initial relationships between taxicab use and population, transit use, and other data were established, upon which adjustments to the total fleet size are currently based.

The purpose of describing these methodological problems is to demonstrate the inherent difficulties in estimating the demand for taxicab service. In fact, left to their own devices, private taxicab companies would not try to definitively measure demand due to analytical complexities and inaccurate or incomplete data. Hall (1996; p.45) provides a good summary of this discussion:

One problem with trying to hit this target is that it is invisible. This alone would account for some errors in marksmanship, but the target is also moving. It moves across the time of day with changes in the demands to use roads. It moves across the years as the average level of demand changes with changing incomes, fuel prices, and technology. The difficulty of hitting this target means that government will miss it.

Has the target been missed in Portland? Anecdotal conversations with many taxicab users and personal experience only confirm the conclusion of the Supervisor that taxicabs frequently cannot keep pre-arranged appointments or arrive late, that waiting time for all customers has increased, that an absolute shortage of taxicabs exists during periods of peak demand, and that downtown close-in neighborhoods and other markets are inadequately served (Hamilton, 1996, 1997d). To a certain extent, these problems may not be due solely to an absolute shortage of taxicabs, but rather may reflect a lack of incentives for taxicab companies to offer new services. Finally, the fact that eight new applicants and two existing companies currently seek to increase the total number of taxicabs, despite the Supervisor's contention that essentially no new demand exists (Hamilton, 1997d), should lead one to look askance at the entire process.

Before dismissing the biennial demand study as a fruitless endeavor (instead of insisting that public officials merely sharpen their pencils), it is worthwhile to step back and look at the supposed goals of entry restrictions to see whether they can be promoted through entry regulation. Entry regulations are generally thought to guarantee that all geographic areas and potential customers are served (i.e. unprofitable service is cross-subsidized by profitable operations), reduce traffic congestion, ensure that only "serious" or "responsible" companies provide service, encourage taxicab firms to finance higher quality service with returns that are increased through market protection to levels above which could be earned in other activities, and raise the standard of living for drivers in the industry. Each of these rationales is discussed in turn.

As already noted, taxicabs in Portland are often unable to keep pre-arranged appointments and must turn down additional service. In addition, the fact that taxicabs generally avoid serving areas which are perceived to be unsafe is well documented. The fact remains that for areas where the risk to life or limb is very real, no price, in fact, could effectively entice taxicabs to provide service. It is also reasonable to expect that some percentage of requests which are likely to result in an empty return trip are similarly refused, as Allen (1978) confirmed in his study. Finally, from a practical standpoint, universal service requirements are virtually unenforceable. In conclusion, no evidence exists to show that universal service requirements provide levels of service superior to what the market would provide, or that market skimming (or "creaming") does not occur. As Frankena and Pautler (1984) note, instead of creating monopolies which are able to selectively withhold service to maximize profits (taxicabs companies in Portland are only required to operate at 66% of capacity[15]), probably the most efficient way to ensure universal access to transportation is through explicit subsidies to riders which do not distort the market for taxicab services.

Regulators and taxicab companies sometimes argue that without entry restrictions, an endless supply of new taxicabs will bring traffic in city streets to a virtual halt. Unfortunately, because of taxicabs' physical similarity to private automobiles and their relatively small passenger loads, the general public, and many planners, too, are prone to believe this. According to this view, because taxicabs and their users do not pay the full price of the congestion costs they impose, entry restrictions will reduce the number of taxicab trips taken and reduce the amount of cruising to an efficient level. This argument overlooks the fact that unless other road users are made to pay the full costs of the congestion they impose, any restrictions on the number of taxicabs or on cruising are likely to lead to an increase in road use by other road users (i.e. private automobiles) who would find their travel costs reduced[16]. This argument also does not account for geography or times of day when congestion is not a problem.

As Downs (1992) explains, in the absence of rapidly increasing population, congestion levels tend to reach an equilibrium level. At this equilibrium level, some auto users who would like to use congested roads have been diverted to other options, either traveling in off-peak time periods, taking alternate routes, or switching to transit or other modes. Each of these diversions represents a latent demand for the road space. If congested road capacity is then reduced for some reason (e.g. new drivers begin to use the road), some commuters will turn to one of the aforementioned options, thereby mitigating some of the increased congestion. Similarly, if capacity on congested roads is suddenly increased (e.g. a new lane is constructed), some commuters currently traveling in the off-peak, taking transit, or traveling via alternate routes will switch to the once congested facility, tending to bring congestion back towards its equilibrium level. Therefore, any long term increase in the supply of taxicabs who place a high value on road usage relative to other users will displace some existing users (including people who substitute taxicabs for private autos) so that in the long run congestion effects are likely to be negligible.

Finally, some service expansion and reduction of waiting times would result, which would also have to be weighed against any increased costs of congestion. In any event, in Portland these impacts would probably be insignificant due to the taxicab market's small absolute size relative to general traffic levels.

Given that the congestion effects of private autos and taxicabs are the same, there is no reason for treating taxicabs differently as a class of vehicle. In this case, entry regulations only serve to protect existing operators from competition. Thus taxicabs should certainly be included as part of any overall solution to congestion and should not be held unilaterally accountable for a problem caused by all vehicles. If the real objective is to increase the number of passengers per taxicab trip, a more constructive approach would be to lift restrictions on ride-sharing[17].

To ensure that only companies "serious" about providing service to consumers obtain permits, prospective companies are required to submit for scrutiny a business pro forma and marketing plan as part of their application. Here it is presumed that serious companies:

.... will not risk their permits by operating their service in a manner contrary to the public interest. The permit creates a type of contract between the company and the City. By managing supply through companies, rather than issuing permits to individuals, Portland officials have avoided fragmenting the industry, while making it easier and less expensive to administer the taxicab program. (Hamilton, 1997d)[18].

The original denial by the Supervisor of Smart Cab's application, however, demonstrates how arbitrary are the standards used to assess "seriousness". While the Supervisor's analysis is not binding, it does influence City Council, which may be too busy to delve into these details themselves. An analysis of the Supervisor's findings follows (Hamilton, 1997b):

1) Smart Cab is given negative marks for proposing to have five people provide dispatch service for an initial fleet of 15 vehicles, citing that no distinction is made between who shall be a "manager", a "supervisor", and/or a "dispatcher". This would appear to be simply a matter of nomenclature.

2) City staff would prefer that Smart Cab store its vehicles in a centralized facility as opposed to at drivers' homes. No stated reason, however, is given for this ruling.

3) A signed letter from an insurance agent indicating that he would like to sell Smart Cab insurance does not prove that he will in fact insure them, and therefore does not contribute to their case. This finding, however, is prefaced (in the very same sentence) by stating that the application does not actually require any such commitment to insure.

4) While the Code currently states that companies must have only 15 vehicles in their fleet (Smart Cab would), staff would prefer that new companies in fact operate more, as 15 vehicles does not seem adequate to provide city-wide coverage. This ruling would appear to set a high barrier to entry and act against small or neighborhood-oriented firms. What might constitute an adequate fleet size is not specified.

5) Staff speculates that two owner-drivers cannot jointly provide 40 hours of weekly service as a public contact (i.e. that they could not work half days, or work the long hours that most taxicab drivers do). This would appear to bias against the hiring of part-time drivers.

6) Good intentions notwithstanding, staff believes that the applicant's claim to bring about some innovations and improved service would result in something very different (i.e. that vehicles will focus on the airport market).

Although the Supervisor is probably correct in assuming that the applicant will direct most service to an already over-served airport, the above points show how the Code can effectively be used to deter any applicant. In addition, this process assumes that the status quo is good enough. Yet no evidence exists showing that Portland taxicab companies operate efficiently or employ the best business practices. Allen (1978), for instance, found that as a measure of economic inefficiency, Portland companies employed 2.65 persons (drivers and administrative staff) per taxicab, compared 2.06 for the rest of the country.

Finally, a process that requires new and existing companies to submit applications concurrently and that renders decisions based upon forecast financial profitability inherently favors incumbents. In response to the author's hypothetical question of how he would allocate 25 new permits among three new companies and one existing company, each of whom requested 40 permits, the Supervisor indicated that he does not expect many new applicants to meet the stringent entry criteria. In the event that multiple companies did pass muster, however, "the art of democracy" would be called upon to allocate the permits (Hamilton, 1998a). Given those standards, the process of approving new companies is unnecessarily subjective and arbitrary, causing a reduction in potential new entrants, and increasing risk (a cost) for all participants in the industry.

By concentrating the industry within the hands of few "serious" companies, the City has actually created incentives to skimp on existing service and withhold potentially innovative ones. As Steve Entler, General Manager of Radio Cab explains, "getting into a sideline business that provides basically the same service as a taxicab is like competing with yourself" (Rose 7/25), essentially voicing what economists have long observed about monopolized industries. Here again, Hall (1996, p.50-51) is instructive:

Once fares rise above a competitive level, the value of providing extra rides becomes greater than the cost. Sellers then stand to gain by finding additional customers, but customers become harder to find at the higher fare. Pursuing these returns is costly, but it is profitable until the (search) cost increases exhaust the rewards....When non-price competition takes the form of drivers searching intensively for customers, drivers will increase their efforts until the expected increase in the probability of finding a customer, weighted by the value of the sale, equals the cost of their work.....In a competitive market, just setting a monopoly price will not generate monopoly returns, however, as competition for these additional customers will occur thereby raising costs and reducing returns. While this behavior will increase service quality, a monopolist (or cartel) will forsake this activity to reduce costs and ensure a monopoly profit.

Thus, business owners do not incur costs trying out new innovations because they are bored, because it is particularly fun to do, and certainly not because someone tells them they must do it. Instead, they do it to stay one step ahead of the competition. In this light, the difficulty of hailing a taxicab in Portland may not be due to prevailing customs, but may represent an "innovation" or a relatively exotic service that taxicabs have little incentive to provide[19]. Allen's observation (1978) that taxicabs historically did not advertise a flat $1 downtown fare (no longer in effect), which was to encourage hailing, would support this latter assumption. The fact remains that taxicab demand and supply are dependent upon each other, and that having some density of taxicab service, in this case taxicabs on the streets looking for hailers, is necessary to elicit hailing demand. Even in large cities where hailing is common, people do not wait on side streets or at remote locations to hail a taxicab, but instead walk to main avenues where taxicabs density is high.

Exhibit 1 in the Appendix shows the market share held by the largest three fleets, a standard measure of monopoly concentration, for 26 large US cities, and sheds some light on the "over-reliance on the regulated (maximum) rate" in Portland (Hamilton, 1998b). Of the 26 cities surveyed, only four cities have a higher monopoly concentration than Portland. In fact, if only Portland's two largest fleets are considered (accounting for 272 of 317 taxicabs), only five cities still have a higher concentration. Recognizing the negative impacts of market concentration, the City of Chicago has sued Yellow Cab and entered into a consent decree requiring Yellow Cab to relinquish 100 of its licenses each year while the city simultaneously auctions 100 additional licenses, until such time that Yellow Cab controls no more than 25% of the local market.

Regulations that increase the profitability of the taxicab industry are sometimes defended on the grounds that taxicab firms will finance higher quality services with excess profits. Assuming for argument's sake that this is true, this still does not provide evidence that the derived service benefits are always worth the cost of the excess profits[20]. The high price of medallions or licenses in some cities, however, shows that taxicab firms do not invest all their extra profits into enhanced service. Licenses in New York City, Philadelphia, and San Diego, for instance, currently trade for $285,000, $44,000, and $60,000 respectively[21]. The market value of a taxicab license represents the present value of the future monopoly rents that accrue to the license holder as a result of restricted entry and inflated prices.

In Portland, we estimate the scarcity value of licenses at roughly $17,000. Currently, a license for a "full" taxicab operable during both day and night shifts can be purchased for a one-time average fee of $20,000 from individual Radio Cab owner-drivers[22] (Entler, 1997; Bussell, 1998). Subtracting an estimated $3,000 for the price of the car leaves $17,000 for the license itself. Radio Cab owner-drivers also pay $185 per week for dispatch and administrative costs, and about $2,000 per year in vehicle storage fees (gas, and repairs are paid for out of pocket; Bussell, 1998). As these fees only permit an owner-driver to drive seven 12-hour shifts, the vehicle is leased out again so that another driver can drive the remaining 12 hours in any 24-hour period.

For hired drivers that do not own their licenses, the license value would be capitalized into the periodic lease or "kitty" fees that are paid to the license holder. At Broadway Cab, the company charges drivers about $400 per week for seven 10-hour shifts, which covers all costs. The difference between $185 and $400 per week represents the value of licenses held by Broadway Cab. Finally, differences in license values between Broadway and Radio could also be attributed to: different discount rates for relatively high and lower income drivers, service quality differentials between companies which are difficult to measure, dissipation of monopoly profits through operating inefficiencies, and the fact that Radio Cab charges slightly lower fares. Table 1 estimates a lower bound on the costs to consumers that result from protection of the local industry.

Table 1
Estimated Annual Cost of Regulation to Consumers

Annualized Market Value of a License $2,720 (a)
Number of Licenses 317
Annual Transfer from Consumers to Producers $862,240

(a) 2 shifts x [($20,000 less vehicle value (estimated at $3,000)] multiplied by an 8% annual interest rate.

This estimate assumes that all dispatch, administrative, and storage fees are charged at cost. That is, all profits are reflected in the license price, and the dispatcher earns no excess profit. As these assumptions are conservative, this may understate the total income transfer due to a shortage of licenses. Importantly, an estimate of the total cost of regulation should also add the value of the additional time consumers are made to wait for taxicabs, the value of trips and/or services that simply are not provided, and the increased costs that consumers pay as they utilize more expensive substitutes, all of which are difficult to measure, but which are probably substantial.

Finally, as taxicab drivers have few specialized skills, the monopoly profits of the taxicab industry are unlikely to affect their earnings (Hall, 1996). Rather, the value of unskilled labor generally determines their earnings. When demand for taxicab service decreases, for example, the biggest change for drivers is the decline in driver employment as opposed to earnings, and some drivers move to other jobs which pay about the same wages.

To examine the characteristics of taxicab drivers, Schaller and Gorman (1995, 1996b,c) provide a good discussion of factors that influence taxicab drivers' incentive to provide higher quality service, whether they work in a regulated or deregulated market. Driving their study was a survey of New York City residents that showed, out of four perceived aspects of taxicab service (the fare, availability, vehicle condition, and the driver), most complaints pertained to the level of service provided by drivers. In this case, common complaints included drivers' inability to converse in English, inability to locate destinations, driver discourtesy, and poor driving ability.

Among the authors' key findings are that full-time owner-drivers with four or more years of experience received much fewer summonses for serious violations such as reckless driving, overcharging, and service refusals than less experienced drivers (typically lessees). Not surprisingly, the authors conclude that the key to improving driver quality is to increase the number of career owner-drivers who, like homeowners, will protect their investment, and that strict enforcement of traffic regulations (e.g. more fining, or elimination of some bad drivers), while necessary to protect the public safety, will not increase the compensation of other drivers left unto itself. Schaller and Gorman then propose that in New York City all corporately owned licenses (known as medallions) revert to individual ownership when they are sold in the future, acknowledging that this might not be for a very long time.

In Portland, however, independent taxicab ownership is stifled through prohibitions on transferring licenses so that lessees can start their own company, even when the new company could do better. Predictably, turnover at Radio Cab, where a large number of drivers are also owners, is approximately 10% to 20% per year, compared to 80% at Broadway Cab where all licenses are owned by the company (Hamilton, 1998c). Particularly telling is the fact that many new self-employed Town Car operators are ex-Broadway drivers. Again, instructing the taxicab companies to treat their employees better will not resolve problems of driver quality and instability within the industry. The solution is to facilitate the process of new company formation.

Service Requirements

Section 16.40.510 of the Code describes the minimum service standards under which permitted companies must operate:

A. An office open and staffed for a minimum of 8 hours a day, 5 days a week.

B. A dispatch system in operation 24 hours each day capable of providing reasonably prompt service in response to requests received by telephone.

C. Facilities and personnel sufficient to insure that every taxicab operated by the company complies with the requirements of this Chapter.

D. Not less than 15 taxicabs, with two thirds of the fleet to be operational at all times, to provide service on a City-wide basis in accordance with the Supervisor's regulations.

E. Insurance policies in force sufficient to meet the requirements of Section 16.40.730 and to protect the company to the same limits of liability.

F. A taxicab company shall not refuse to respond to any request for taxicab service received from a location within the City.

G. Each driver shall maintain a log in which a record of every trip shall be kept, in a form approved by the Supervisor. The taxicab company shall maintain the log for at least 1 year after the last entry therein.

Requirements that companies operate a minimum number of days per week, hours per day, and/or total vehicles can be discussed together. Service standards of this nature essentially force companies to demonstrated their "seriousness" through substantial capital expenditures. These standards also presume that companies must provide dispatch service to be economically viable, and that 15 vehicles are required to provide adequate coverage. Several problems result from these type of policies. Assuming that firms need to provide dispatch service to survive, firms will have an incentive to form a sufficiently large fleet size to reduce customer wait time and maintain a good reputation. Moreover, not all service needs to be dispatch-based, as demonstrated by the success of New Rose City Cab which had no dispatch system for years. Customer wait time at a taxicab stand is actually determined by the size of the total industry and not by the size of any one individual company. The fact remains that in a competitive market, incentives exist for independent taxicabs to form fleets to capture scale economies, and to create brand loyalty. This is already beginning to happen in the town car market, which has minimal entry restrictions, as individual operators begin to direct service to each other via cellular telephones (Bussell, 1998). To conclude, however, no conclusive evidence exists to show what might constitute the "optimal" fleet size, and therefore firms should be left to discover this for themselves. Current service standards do not appear to be driven by any economic rationale, but rather serve to protect the larger companies from smaller, potentially lower cost firms.

For cities that base fares upon taxicab firms' cost of doing business, regulations that raise costs (e.g. minimum office hours) would lead to higher fares. Service requirements in Portland also prevent the adoption of low cost shared-ride services. For example, all of the cities and taxicab companies surveyed do not allow taxicabs to pick up additional passengers en route, or if not, they require that the first passenger or group give permission to take on additional riders, thereby decreasing taxicab utilization and increasing the cost of rides. In this case, allowing taxicabs to post destination signs and accept all riders, to effectively operate as jitneys, could increase utilization by attracting riders who would seek reduced fares. Jitney service might capture peak rush-hour demand for transit just as licensed part-time coffee and food vendors supply service not handled by restaurants. In this light, there is no economic reason why independent would-be participants should be prohibited from providing peak or niche services that the larger providers selectively withhold or are incapable of serving. Independent taxicabs, for instance, might set their sites on providing shuttle service to sporting events, music events, and festivals.

Quality Standards

Safety and quality standards, to be met by each individual taxicab, are described in section 16.40.720. Thus vehicles must be:

A. Kept clean;
B. Kept in good appearance and good repair;
C. Properly maintained;
D. Kept in safe condition; and
E. Equipped with all pollution control equipment and safety devices originally installed by the manufacturer, and such equipment and devices shall be kept in good working order.

Few studies have criticized regulations concerning vehicle condition and age, safe operation, driver qualifications, or insurance coverage (Frankena and Pautler, 1984). Because it may be difficult or impossible for passengers to judge some aspects of the quality of taxicab service before they ride, it may be efficient for government to regulate these matters to reduce information costs. This is why restaurants are required to submit to periodic visits from the local Health Inspector. Although these various aspects of safety also affect third parties (e.g. pedestrians and other drivers), these externalities do not warrant that safety standards be different for taxicabs than for all drivers and vehicles. In this regard, the amount of insurance that Portland taxicab companies are required to carry appears to be adequate but not burdensome, and its driver licensing requirements are not unduly stringent. At the same time, however, it might be efficient to have stricter enforcement of standards, as the benefits of enforcement would be increased for vehicles that travel more miles per year (Kirby, 1974). In Portland, permit holders are not actually required to provide proof of inspections for mechanical safety; instead all taxicab companies are to file annual policy statements that describe how they ensure both vehicle and driver safety, and service quality (Hamilton, 1998d). While the Supervisor does personally inspect all wheelchair accessible vehicles and spot checks the remainder of the fleet on an ad-hoc basis, a more regular system of inspections, as occurs in the restaurant industry, might be justified.

Fare Regulations

The primary reason that regulators establish fixed or maximum fare levels in the taxicab industry is to ensure that prices are "reasonable" in the eyes of consumers, and that producers are ensured a "reasonable" profit (Hackner and Nyberg, 1995). Economists do not define a "reasonable" price but rather have a concept of a market clearing price which under competitive conditions simultaneously maximizes wealth for both consumers and producers.

Cities that regulate fares usually target some revenue-cost ratio or rate of return, and Portland presumably follows suit. While the Code does permit the Supervisor to collect financial data from the taxicab companies, company revenue is not actually divulged due to proprietary confidentiality (Hamilton, 1998d). Instead, the Supervisor estimates the average costs of doing business for these companies and meets with them to get concurrence, and without ever seeing their books, sets the rates accordingly. Finally, these rates are compared to other cities (e.g. Minneapolis, Kansas City, San Jose, and Seattle) for reasonableness.

Exhibit 2 shows prevailing rates for 28 large US cities, and estimated costs for a representative city trip and a longer distance trip (the same distance as from downtown Portland to the airport). Of the 28 cities surveyed, only three cities would charge a higher fare for the city trip that is modeled, while for the longer trip, ten cities would charge higher rates. This data reveals that while Portland's meter rate is close to the industry average, its flag drop charge, weighted to reflect the lower fare charged by Radio Cab, is the highest among the cities and companies surveyed. The excessiveness of Portland's taxicab rates is demonstrated, however, not by comparison with other cities[23], but rather by high (positive) license values.

Hall's earlier observation regarding government's (in)ability to discover the optimum level of industry supply is also true regarding the process of setting efficient fares. Due to informational and analytical problems, government is sure to miss the target. However, to rely upon the market to establish efficient fares, again, we must consider the market imperfections that would justify rate regulation. Factors typically cited as justification for setting fixed or maximum fares include inelastic demand for taxicab services, informational problems in the market for cruising taxicabs, and economies of scale in the telephone dispatch market. Each of these issues is discussed in turn.

Most studies of the taxicab industry estimate the fare elasticity of demand to be in the range of -0.5 to -1.0, meaning that the quantity of trips taken is relatively unresponsive to price changes (Frankena and Pautler, 1984). While most of these studies have methodological problems, as many taxicab users are poor and have no car, or are travelers not wanting to pay high parking charges at airports, it is still plausible to assume that demand is relatively inelastic. Inelastic demand for a product or service by itself, however, does not distort the market if competition exists among multiple suppliers to provide the product or service. A good example of this situation is the market for cigarettes, where demand is inelastic due to the addictive nature of the product consumed, and few substitutes exist. In this case, however, competition among brands drives prices down to an efficient level. Thus inelastic demand only becomes a problem when producers perceive inelastic demand for their brand. That few taxicab companies operate in Portland with little incentive to compete, however, is a problem that local government officials have in fact created through regulation, and can rectify.

The peculiar nature of the cruising taxicab market, where consumers and producers operate from random locations, creates informational problems which are thought to necessitate rate ceilings. In this case, taxicab users in the cruising market are unlikely to turn away the first taxicab that comes to them, as they do not know when the next taxicab will arrive or what price it will ask (Williams, 1980). Since relatively inexpensive cruising taxicabs cannot signal their whereabouts to consumers, an upward pressure on prices results, as taxicabs that raise their fares above the going rate are unlikely to lose many passengers.

Two potential solutions exist to solve informational problems in the cruising taxicab market. One solution is for hailers to call a dispatch company, which does have a fixed location, to have a taxicab sent to them. This, of course, would require multiple dispatch companies serving the market so that price competition is workable.

As a second solution, hailing customers also have the option of heading to the nearest taxicab stand where price competition can occur among the waiting taxicabs. A familiar example illustrates this point. Just as food cart vendors typically appear in areas where there is a large customer base, and where other food providers (i.e. restaurants) are located, cruising taxicabs similarly tend to operate where some density of demand already exists. What prevents roaming food vendors from charging exorbitant prices, however, is the fact that customers can readily go to a competing vendor or restaurant. Thus, while a food cart vendor may be able to charge some premium for the convenience of bringing his or her product to the customer, a competitive marketplace keeps this premium at a reasonable (efficient) level.

The problem in Portland, and in most cities, is that price and quality competition at taxicab stands is effectively prohibited, either through regulations or enforced customs which require that passengers employ the first taxicab in the queue. At the Portland airport, passengers are required to accept the first taxicab in the queue. And elsewhere, while customers have the legal right to choose among taxicabs at stands, the drivers themselves will direct passengers to the front of the queue. Moreover, the City does not actively advertise the fact that choice exists, nor does it punish drivers who enforce first-in, first-out customs. In the taxicab stand market, then, taxicabs effectively operate as one company, or fleet, and price and quality competition does not occur.

Frankena and Pautler (1984) describe how multiple, distinctively marked fleets can reduce problems of price searching in the cruising taxicab. Fleets would have greater incentive to charge lower fares and provide better service than identically-marked taxicabs for three reasons. Because its vehicles could be identified easily, a fleet would reduce search costs for riders seeking a lower fare or better service. Secondly, the larger the number of taxicabs charging a lower fare, the lower will be the expected cost to riders who turn down higher priced taxicabs. Finally, fleets might attract to the cruising market a group of riders who are unwilling to pay the higher fare charged by other taxicabs and who will wait until a fleet vehicle appears. As taxicab companies in Portland have historically resisted attempts to make them compete as distinct fleets or brands [24], however, some mechanism is necessary to force them to do so.

Economies of scale exist when the average cost of production declines as a company's output increases. While there do not appear to be economies of scale in the taxicab stand or cruising taxicab markets, scale economies exist in the market for advertising, vehicle management, and vehicle dispatching. Economies of scale can pose problems when the output range over which cost declines is large relative to the absolute size of the market, as the number of firms in the industry is likely to be small, and firms may able to charge prices above marginal cost without causing other firms to enter the market. Thus, for cities that have relatively small fleet sizes (e.g. Virginia Beach with 39 vehicles, Albuquerque with 133, and Long Beach with 105), price ceilings may be warranted to restrain firms from exercising market power.

Small market size by itself, however, may not always be the best indicator of scale economies, as some cities that restrict entry (e.g. Albuquerque, Long Beach) may actually restrict supply to levels far below what the market would provide, thereby creating a self-fulfilling prophecy. In fact, cities that have open entry policies, and/or allow independent taxicabs, regardless of market size, also show reduced monopoly power. The largest three companies in Fresno, for instance, which only has 50 total vehicles, only constitute 66% of the market, compared to 94% for Portland. Similarly, Indianapolis and Kansas City, which have 398 and 360 licensed taxicabs respectively, and which also have open entry policies, only have monopoly concentrations of 50% and 66%. These findings are consistent with other studies (Frankena and Pautler, 1984) that show that where open entry is allowed, small firms and independents can coexist with large companies and can potentially reduce market power (i.e. excessive prices). To conclude, arguments that claim that economies of scale in the taxicab industry are so substantial as to make competition impossible are not defensible[25].

One result of inefficiently high fares is the long queues that taxicab drivers and town car drivers wait in at the airport to take rides. Drivers are willing to wait in long queues because the benefits of a long-haul trip outweigh the cost of waiting. On a per hour basis, these trips generate the most income and highest profit. At the same time, the fact that consumers are increasingly choosing town cars, which offer better service at only a slightly increased cost, to taxicabs, despite the fact that they may not really want a complimentary newspaper or bottled mineral water, shows how the quality of taxicab service is overpriced.

The solution to the problem of inefficient (excessive) supply, however, is not to restrict entry of town cars and taxicabs into the market, but to reduce fares to the market clearing level. Many cities do this by establishing flat airport rates which are lower than the regulated meter rate on a per mile basis. Returning to Exhibit 2 then, Portland's rate for a long distance trip (representing an airport trip) is relatively high on a per mile basis[26]. Another solution might be to require taxicabs at the airport to compete with each other for airport rides rather than using the first-in first-out system. To conclude, there is no economic reason why the most lucrative service should be reserved exclusively for the existing taxicab companies, while new entrants are forced to provide innovative, but marginally profitable service. In this light, policies stating that new airport providers "need not apply" (Hamilton, 1997d), or that "we don't want to create new employment opportunities at the expense of our existing businesses" (Francesconi, 1997) are inequitable. Similarly, policies forcing town cars to raise their own rates effectively punishes these operators for providing affordable service that consumers value, and only exacerbates the problem of wasteful overspending. The problem at the airport calls for more competition and more service, not less.

In order to compete for airport service, new entrants would want to offer long-haul discounts. However, while the Code does not prohibit alternative rate schedules, rates must be filed with the Supervisor. This system tends to preclude other pricing options that might benefit both taxicab providers and consumers. Zonal fare systems, for instance, which charge a set fare in advance for trips entirely within a zone or between each pair of zones, are particularly helpful to tourists who are vulnerable to circuitous route taking, and are used extensively in Washington D.C. Zonal systems reduce customer uncertainty, and would be particularly valued by regular and low income users. They also facilitate shared-ride service, as fares are more easily divided. Taxicab companies, therefore, might implement a zonal fare system to gain a competitive advantage, by creating predictability for customers, and perhaps by eliminating the need to purchase and maintain taximeters.

Although the City would like to see more innovation from its taxicab companies, the fact remains that product differentiation does not occur with single regulated prices, and that unregulated prices to offset increased risk would provide more incentive for exploration of new markets and services. Similarly, rigid rate structures work against some "traditional" taxicab services too. The fact that taxicabs are scarce during the rush hour, for instance, is partly attributable to prohibitions against part-time providers, and is also due to a rate structure that does not account for circumstances, in this case congestion, that raise operational costs (which is why telephone companies and airline carriers institute peak period pricing). Thus, as some trips to distant suburbs and late night trips are probably turned down do to the increased risk of returning empty, flexible rate structures could ensure more reliable service by accurately reflecting density of demand.

Whereas Schaller and Gorman showed how lessees can be expected to provide worse service than driver-owners, Hall (1996, p.60-62) shows for both groups how driving standards are lowered when a few firms charge similar fares due to a lack of competition:

Ironically, by standardizing taxi service government has exacerbated the problem of enforcing quality standards for drivers. Avoiding those drivers or companies who provide bad service is more difficult when service is homogenous. Bad drivers take advantage of this heightened opportunity to escape penalties which markets impose...If fare regulation drives brand name companies out of the trade, their self-policing mechanisms go with them. This exodus, in turn, encourages those drivers with less scruple and/or greater skill at avoiding regulation to join the business. In effect, bad drivers drive out the good.

Personal experience, anecdotal conversations with other taxicab users, and Radio Cab drivers' insistence that the company raise its rates to the maximum allowable (Bussell, 1998) suggest that local taxicab users do not perceive much difference between the existing companies. And when one company fails to show, or arrives late, the consumer has few alternatives. Similarly, when taxicabs are deployed on a first-in first-out basis at taxicab stands, drivers have no incentive to increase quality, as customers cannot efficiently seek out those who do.

Finally, returning to the subject of inelastic demand, one effect of the rate structure that Portland has settled on is its disproportionate impact on the poor. In defense of Portland's relatively high flag drop charge, the highest among the cities surveyed, regulatory staff has offered that high up-front costs should be paid for up-front, and that the high charge is necessary to entice providers to service less lucrative short trips (Hamilton, 1998d). In fact, only two costs are probably attributable to taxicab trips as opposed to trip durations, these being the costs of dispatching and time spent boarding and unloading (Wohl, 1984). Nevertheless, there is no inherent reason why these costs must be allocated on a per trip basis as opposed to on a per mile basis (although the survey results show that most cities take the latter approach). However, most long-distance trips are by passengers with higher incomes (business travelers and tourists), and most short-haul trips are by lower income riders on shopping trips or health care visits (Frankena and Pautler, 1984; Wohl, 1984). Therefore, Portland's rate structure leads the poor to pay a higher proportion of the industry's fixed costs[27].

Recommended Changes to Portland's Taxicab Regulations

Portland's taxicab regulations do not actually support the overall goal of the regulations, which is to promote competition within the industry, and to allow the industry to operate without undo restraint. As the previous sections have shown, restrictions on entry, minimum service requirements, and prohibition of independent operators do not increase economic efficiency, and instead are directed to protecting the industry from competition. In addition, tolerance of first-in first-out queues at taxicab stands effectively prohibits competition. In creating a highly concentrated industry with little incentive or opportunity to compete, then, the City has actually caused the problems that give rise to other regulations.

Removing Barriers to Entry

This study recommends that regulations that restrict entry, establish minimum service requirements, and prohibit independent operators be removed from the Code. These regulations reduce service for the consumer, stifle innovation, increase the cost of taxicab trips, reduce industry employment, and constitutes de facto discrimination, as many would-be participants are minorities and/or immigrants. In addition, experience from other cities shows that costly enforcement of entry restrictions achieves little, and that illegal activity will only increase with market size (illegal activity is a persistent problem in New York, Los Angeles, Chicago and Philadelphia).

Deregulating entry into the industry does present some difficulties. Many taxicab owners have invested thousands of dollars purchasing licenses or shares in taxicab companies. However, since the high value of the taxicab license is an artificial creation of the regulations, the government has every right to take it back. A more politically palatable solution, however, might warrant a more gradual transition. For instance, the City could increase the supply of permits at monthly auctions for a transitional period, after which time no restrictions would apply. Of course, the cost of a long transition period is a slower pace of innovation.

Creating Property Rights in Taxicab Stands

A second barrier to competition is the presence of first-in first-out taxicab stands. Downtown curb spaces have several alternative uses, including but not limited to: metered parking, lanes of traffic, loading zones, and bike lanes. Construction companies that use curb space must pay for the privilege. Despite past policies of charging for curb space, however, the City now gives away the space for free, reasoning that taxicabs already pay to use this space (less than $50 per year per vehicle) through permit and business license fees (Allen, 1978; Hamilton, 1997c). Following this reasoning, we would also base the price Starbucks might pay to operate at a prized location such as NW 21st and Lovejoy upon the value of services provided by the Public Health Inspector who inspects for cleanliness. How many taxicab stands should there be? Of the approximately 80 taxicab stands in the city, many are underutilized, while others face a steady demand. City policy over the years has allowed the number of stands to proliferate without any rational plan for establishing or removing them.

This study proposes that taxicab companies be required to lease curb space from the City, and that each stand be reserved for the exclusive use of the controlling company or association. Thus, regulatory staff would identify curb zones, perhaps drawing upon the input of neighborhoods who might desire additional service, and put them up for lease. These zones would be auctioned off in such a way to prevent monopoly power which could result from an initial maldistribution. Firms with knowledge of local market opportunities would bid for sites in those areas, and the one with the highest valuation would get the curbspace. In this case, zones might not only include the curb, but might also include the adjoining space on the sidewalk and road, creating a "complete" stop to effectively be managed by the taxicab company as a private resource. The holder of the curb rights would have an incentive to monitor its "property" and report violations, which would be treated as a private tort and/or a municipal violation. Independent cab owners would also be allowed to form associations to lease and manage curb space. This solution simultaneously addresses the problem of stand proliferation, and provides customers with a method of selecting among taxicab companies that cannot be undone by the companies.

Creating Competition at the Airport

This study proposes that taxicabs lease curb and counter space at the airport. The rapid rise in commercial door-to-door services among airport users represents a major change in US airport ground access travel during the last two decades, as airport travelers particularly value high quality transportation service. Even in cities where airports are well served by rail and bus transit such as Washington D.C. and Chicago, taxicabs are estimated to account for 36% and 15% of all ground transport trips respectively (Cogan and Cambridge Systematics, 1997). In this light, demand for taxicab, town car, and shuttle van service at Portland International Airport should be expected to grow substantially in the future, reinforcing the need to find a more efficient system of providing these services.

In this case, the taxicab companies would be required to lease counter space which could be located within the airport lobby, perhaps adjacent to the rental car counters to further encourage comparison shopping[28]. To ensure competition, the Port of Portland as manager of the airport could establish five or more counter areas which would be auctioned off to the highest bidders. Again, independents would be allowed to pool their resources to lease space. Depending on logistical constraints, some curb area near the retail counters could be reserved for each company to facilitate quick boarding, or perhaps a shuttle would carry passengers to a secondary boarding area, as is currently done with rental cars. To encourage more shared rides, which might be facilitated by firms offering flat and/or zonal fares, Port staff could also provide shared ride coordinators to quickly help passengers group together.

In fact, a similar solution was recently proposed for San Francisco International Airport, which cited problems similar to those experienced in Portland (Cogan and Cambridge Systematics, 1997). Three separate departure zones, in this case for shuttle services, were established. Two large companies were to be selected by a bidding process, while a third area would have a neutral coordinator to dispatch all the other companies. After the bidding process was conducted, however, the operation was put on hold as the those in charge of administering the program were flooded with complaints from the losing companies. Interestingly, many of these same losers indicated that they would still prefer some system whereby which they could compete on the basis of their reputation rather than returning to the prior system.

What might Portlanders see as a result of these changes? Some airports already allocate exclusive curb rights to shuttle companies, and according to that industry's largest firm, Supershuttle, the total market has expanded at these airports (Klein, 1997). Competition would be expected to bring the fare level down to an efficient level and solve the problem of oversupply. Initially, this same solution of leasing counter space would also be made to apply to town cars. If market entry were deregulated in the near future, as this study proposes, and a property rights framework to create competition was implemented, one should eventually expect to see individual companies offering multiple, differentiated products, so that taxicab service, town car service, and perhaps even rental car service could all be purchased from the same counter.

Deregulating Rates

Removing entry barriers and introducing property rights would create a framework whereby price competition becomes workable, eliminating the need to regulate rates. To facilitate fare comparisons, however, taxicab companies should be required to use some uniform measure (e.g. one-fifth of a mile) for distance-based fares. Rates would have to be posted on vehicles, but they would no longer have to be filed with the Supervisor. Zonal fares, time of day premiums, and other fare mechanisms would also be permitted.

Review of Deregulation in Other Cities

Perhaps the most comprehensive studies of prior attempts at market entry and fare deregulation were performed by Frankena and Pautler (1984), Teal and Berglund (1987) and Price Waterhouse (1993). These studies analyzed the effects of taxicab deregulation in 21 cities to determine the extent that benefits predicted by economists in fact materialized. These benefits were thought to include more taxicab service and faster response times, reduced monopoly concentration, lower fares, and improved service. Following are some key findings of these studies:

1. Number of taxicabs

All studies note that taxicab supply increased dramatically, and that much of this new supply was directed to already over-served airports where wait times for customers were already short (as is currently happening in Portland). All authors note that potential price and service competition was effectively eliminated by continued enforcement of first-in first-out queues. Frankena and Pautler (1984) report that supply increases caused taxicab insurance rates to decline due to increased group rate discounts.

2. Market concentration

Frankena and Pautler (1984) report that market share held by the three largest firms in each city declined substantially. Although Price Waterhouse (1993) does not specifically mention market concentration, its finding that most new entrants were primarily independents (few new companies formed) would logically imply decreased monopoly power.

3. Response times

Whereas Price Waterhouse (1993) reports that response times "were similar to pre-deregulation performance", Frankena and Pautler (1984) and Cervero (1997), report that response times declined dramatically in the cities they studied (e.g. Seattle, San Diego, and Indianapolis).

4. Fare levels

Price Waterhouse (1993) reports that fares increased in every case, and cite the persistence of mechanisms that work against price shopping (i.e. first-in first-out queues) as the culprit. Frankena and Paulter (1984) note that fare increases were lower than what would have been predicted based on trends over the prior 10-year period. Price Waterhouse (1993) also notes substantial variance in fares among cabs. Frankena and Pautler (1984) suggest that because in most cities taxicabs were required to charge a uniform set of fares, some taxicabs that served markets with more elastic (price-sensitive) demand and airport markets probably established some average rate, which would be lower than that for airport-only providers.

5. Service

All studies report of short-haul trip refusals, though this rate is not compared to pre-deregulation. Cervero (1997) reports that redlining or refusing to serve minority neighborhoods was not a noticeable problem.

The fact that all the benefits anticipated from competition did not materialize should actually come as no surprise, as in fact, competition was not allowed to happen by design, showing how competition and deregulation are not one and the same, and pointing to the critical importance of establishing property rights at taxicab stands. By continuing to enforce first-in first-out queues at taxicab stands, cities only allowed more taxicabs to jump on a gravy train that had its brakes removed. What is peculiar, however, is that while all the authors identify the taxicab stands as being at the root of problems encountered, none seriously question the value of lumping all the providers together in the first place.


Because of regulations that restrict entry, increase waiting times, and raise fares, the number of taxicab trips taken in Portland is inefficiently low. Because of regulations that inhibit ride sharing, increase trips without return fares (or "deadheading"), and increase the time that drivers spend waiting in queues, the cost of producing taxicab trips is unnecessarily high. Finally, a lack of effective competition has created shortages of certain types of service (e.g. short trips) and stifled innovation. As a result, these regulations have reduced industry employment and have transferred wealth from consumers to entrenched taxicab companies, with a disproportionate impact falling on the poor.

This study does not call for more or "better" regulations. Instead, this paper argues that an improved taxicab market can arise by removing regulation and promoting competition. Elements of this proposal have been tested in places such as Indianapolis, Washington D.C., Denver, Phoenix, and other cities, where deregulation has revived local taxicab markets.

Under the proposed system, one which fosters true competition and self-regulation, the only requirements for market entry might be a valid drivers license, vehicle insurance and registration, and safety certification. Industry competition and self-regulation would avail the City from having to investigate complaints such as drivers having "grungy attire" and ensuring that lost and found items are recorded and handled correctly. Similarly, the City would not have to tell drivers to keep their cars clean, and not to use them to commit crimes. Instead, taxicab companies would have incentives to voluntarily provide information regarding fares, amenities, and accident records to groups like the Oregon Visitors Association, local business groups, senior citizen organizations, and the public in general.

Exhibit 1 : Market Share of Three Largest Taxicab Companies

Exhibit 2: Comparison of Taxicab Rates


Allen, James J. Regulation of Taxicabs in the City of Portland: Review and Recommendations (Volumes I, II, III). Prepared for the City of Portland, Oregon Bureau of Planning. 1978

Arrington, G.B. Director of Strategic Planning, Tri-Met. Address to Central City Transit Plan Citizens Task Force. February 3, 1998

Bogue, Philip R. "Tri-Met welcomes competition to enhance mobility in the region." The Oregonian. October 14, 1997

Bussell, David. Owner-Driver, Radio Cab Co. Interview with author. February 1, 1998

Cambridge Systematics. 1996 Enplanement Study.

Cervero, Robert. Paratransit in America. Praeger Publishers; Westport, CT. 1997

Cogan, Matthew A. and Cambridge Systematics. The Peer Analysis Report Prepared for the Port of Portland. April 1997

Dempsey, Paul Stephen. "Taxi Industry Regulation, Deregulation & Reregulation: the Paradox of Market Failure." Transportation Law Journal 24(1) Summer 1996: 73-120.

Downs, Anthony. Stuck in Traffic: Coping with Peak-Hour Traffic Congestion. Brookings Institute Press; Washington D.C. 1992

Entler, Steve. General Manager, Radio Cab Co. Interview with author. December 19, 1997

Francesconi, Jim. "Francesconi Says Editorial Unfair". The Portland Skanner. December 3, 1997

Frankena, M. and P.A. Pautler. An Economic Analysis of Taxicab Regulation. Staff Report of the Bureau of Economics of the Federal Trade Commission. Washington D.C. 1984

Gaunt, Clive and Terry Black. "The Unanticipated Effects of the Industry Commission's Recommendations on the Regulation of the Taxicab Industry." Economic Analysis & Policy 24(2) September 1994: 151-170.

Hackner, Jonas and Sten Nyberg. "Deregulating Taxi Services: A Word of Caution." Journal of Transport Economics and Policy 29(2) May 1995: 195-207.

Hall, Christopher D. The Uncertain Hand: Hong Kong Taxis and Tenders. The Chinese University Press; Hong Kong. 1996

Hamilton, John. City of Portland Taxicab Supervisor. "Taxicabs and Livability." Portland State University. 1996

Hamilton, John. City of Portland Taxicab Supervisor. Personal communication with author. October 23, 1997(a)

Hamilton, John. City of Portland Taxicab Supervisor. Smart Cab Application Supplement. November 4, 1997(b)

Hamilton, John. City of Portland Taxicab Supervisor. Personal Communication with author. December 29, 1997(c)

Hamilton, John. City of Portland Taxicab Supervisor. Biennial Taxicab Demand Study. December 31, 1997(d)

Hamilton, John. City of Portland Taxicab Supervisor. Personal Communication with author. January 7, 1998(a)

Hamilton, John. City of Portland Taxicab Supervisor. Personal Communication with author. January 16, 1998(b)

Hamilton, John. City of Portland Taxicab Supervisor. Personal communication with author. February 7, 1998(c)

Hamilton, John. City of Portland Taxicab Supervisor. Personal communication with author. February 18, 1998(d)

Hamilton, John. City of Portland Taxicab Supervisor. Personal communication with author. March 11, 1998(e)

Kirby, Ronald F. and others. Para-Transit: Neglected Options for Urban Mobility. The Urban Institute; Washington D.C. 1974

Klein, Daniel B., Adrian T. Moore and Binyam Reja. Curb Rights. Brookings Institution Press; Washington D.C. 1997

Nelson, Pauline. Port of Portland Ground Transportation Unit. Personal communication with author. February 9, 1998

Oliver, Gordon. "Town cars muddy the waters of Portland taxi regulation." The Sunday Oregonian. December 21, 1997

Oregon Employment Department. Oregon Wage Information - 1995

Oregonian editorial. "Loosen transit reins." The Sunday Oregonian. September 18, 1997

Parente, Michele. "Portland moves to open taxi market." The Oregonian. November 13, 1997

Parente, Michele. "Portland council edits taxicab rules." The Oregonian. December 18, 1997

Parente, Michele. "More taxis in Portland's future?" The Oregonian . January 8, 1998

Parente, Michele. "Taxicab applications flood city in-box." The Oregonian. February 4, 1998.

Parente, Michele. "Board: City will fare better with more cabs." The Oregonian. April 2, 1998.

Price Waterhouse Office of Government Services. Analysis of Taxicab Deregulation and Re-Regulation Prepared for the International Taxicab Foundation. Washington D.C. 1993

Rose, Michael. "Hacks ready to attack new cab rival." The Business Journal of Portland. July 25, 1997

Rose, Michael. "Squeeze time for town cars." The Business Journal of Portland. January 9, 1998

Rose, Michael. "Ex-cabbies collide with New Rose City." The Business Journal of Portland. January 30, 1998

Schaller, Bruce and Gorman Gilbert. "Factors of Production in a Regulated Industry: Improving the Proficiency of New York City Taxicab Drivers." Transportation Quarterly 49(4) Fall 1995: 81-91.

Schaller, Bruce and Gorman Gilbert. "Villain or Bogeyman? New York's Taxi Medallion System." Transportation Quarterly 50(1) Winter 1996: 91-103.

Schaller, Bruce and Gorman Gilbert. "Fixing New York Taxi Service." Transportation Quarterly 50(2) Spring 1996: 85-95.

Smart Cab Co., LLC. Application for Taxicab Company Operating Permit. July 1997

Solberg, Bruce. "Bridging the transportation gap." Daily Journal of Commerce. September 10, 1997

Taylor, D. Wayne. "The Economic Effects of the Direct Regulation of the Taxicab Industry in Metropolitan Toronto." Logistics and Transportation 25(2) June 1989: 169-181.

Teal, Roger F. and Mary Berglund. "The Impacts of Taxicab Deregulation in the USA." Journal of Transport Economics and Policy [21] (1) January 1987: 37-55.

Tri-Met Operating Budget for Fiscal Year 1997-1998

Tri-Met Working and Wage Agreement. December 1, 1994 - November 30, 1998

U.S. Bureau of the Census. Statistical Abstract of the United States: 1996 (116th edition). Washington D.C. 1996

Webber, Melvin M. "The Marriage of Autos and Transit: How to Make Transit Popular Again." Access 5 Fall 1994: 27-31.

Williams, David J. "Information and Price Determination in Taxi Markets." Quarterly Review of Economics and Business 20(4) Winter 1980: 36-43.

Wohl, Martin and Chris Hendrickson. Transportation Investment and Pricing Principles. John Wiley and Sons; New York, NY. 1984

Appendix A - Taxicab Industry Contacts

Vivian Allison, City of Detroit Consumer Affairs
Paulette Braithwaite, City of Virginia Beach Special Events/Film Office
Terry Brown, City of San Jose Police Department
Dolores Butcher, City of Tucson Business Licenses
Jim Copeland, City of Milwaukee License Division
Julia Craig, City of Charlotte Taxicab Inspectors Office
Blanton Daniels, City of Houston Transportation Division
Anna Deosdade, City of San Antonio Police Department
Ceci Flores, City of El Paso Police Department, Vehicles For Hire
Jaunice Floyd, City of Long Beach Business Licenses Department
Alan Fromberg, City of New York Taxi and Livery Commission
Sharon Gadd, City of Columbus Public Safety Department, License Section
Gary Gramlick, Colorado Public Utilities Commission
Mary Beth Haley, City of Dallas Transportation Regulation
John Hamilton, City of Portland Taxicab Supervisor, Bureau of Licenses
Sant R. Harrison, Pennsylvania Public Utilities Commission, Bureau of Transportation and Safety
Robin Hunt, Yellow Cab Inc., Indianapolis, Indiana
Jeannie Lee, City of Los Angeles Department of Transportation
Craig Leisy, City of Seattle Consumer Affairs Unit
Barbara Lupro, City of San Diego Metropolitan Transit Development Board
Vince Martinez, New Mexico State Corporation Commission
Leon Molina, City of Fresno
Richard Page, Maryland Public Service Commission
Steve Patterson, City of Chicago Department of Consumer Affairs
Sandra Ramirez, Strategic Planning, Arizona Department of Motor Vehicles
Danny Reed, City of Fort Worth
Sgt. Vincent Simpson, City of San Francisco Police Department
Floyd Underwood, City of Kansas City Taxicab Permits

Appendix B - Sample Survey

Hello. My name is John Boroski and I am an Urban and Regional Planning student at Portland State University. As part of my thesis research, I am conducting a national survey of taxicab companies and regulators so that I may gain a better understanding of taxicab regulation, and the general degree of innovation within the paratransit industry . Please take a few minutes to complete the following survey. Questions and completed surveys can be directed to me at:


Thank you very much for your time and consideration in this matter; I look forward to hearing from you.

Contact Person: City:

Agency: Phone:
Fax: E-mail:

1. What is the estimated or actual (circle one) total number of taxicabs legally licensed to operate in your jurisdiction? Has this number changed in the last five years?

2. In what cities or geographic areas are these cabs licensed to pick up passengers?

3. Please list any criteria which limit entry into the taxicab market (e.g. ratio of taxicabs to population served, public convenience and necessity, economic indicators).

4. Who are your biggest three fleets (list name and number of cabs)? Do you have independent, driver-owned cabs?

5. Please indicate the maximum and/or minimum operator fleet size permitted, if any.

6. If permits or medallions can be traded, what is the current price? What type of transaction would this represent (circle one)? A) Individual driver rents a license which is owned by a dispatch company. B) Independent vehicle owner acquires a license and then subscribes to a dispatch service if they choose.

7. How many cabs do you estimate are operating without a license?

8. How may cabs be legally employed (check all that apply)?
____ Hail ____ Stand ____ Phone

9. Can customers choose among cabs at cab stands, or must customers take the first cab in line per regulations or informal custom (circle one)?

10. Estimated or actual percent of trips by:
____ Hail ____ Stand ____ Phone

If actual, for what year? _____

11. Are dispatch radios in cabs mandatory or optional?

12. Please indicate maximum and/or minimum rates permitted per unit of distance traveled:
maximum minimum
flag drop:
meter price:
waiting time:
other: (e.g. zones)

13. Can taxis offer different prices? If yes, when do they do this?

14. Are taxis permitted to pick up additional passengers en route? If yes, must they get the first passenger's permission?

15. If shuttle van or jitney service is permitted (other than airport service), how is this service differentiated or regulated differently from taxi service?

16. Do the taxi rates and regulations which you administer apply when the trip destination is out of your jurisdiction, or, for instance, can rates be negotiated?

Appendix C - City of Portland Title 16 Ordinance Definitions

Luxury Transportation: Regular, ongoing transportation service provided in a motorized vehicle designed, equipped, staffed and used exclusively for providing luxury transportation service, which at a minimum includes:

A. A chauffeur professionally dressed according to limousine industry standards and trained to be especially attentive to passenger needs, convenience, comfort, or pleasure.

B. Large, expensive, classic or vintage vehicle commonly recognized by the limousine industry as a limousine or executive vehicle.

C. Vehicles impeccably clean and rigorously maintained.

D. Passenger amenities, including but not limited to, luxury upholstery, halo lighting, sun roof, telephone, television, or other amenities.

E. Except as provided in subparagraph f., below, service by reservation only (for example, not to be hailed on the street) means restricted to requests by prior arrangement.

F. Service may be made available on demand for transportation originating at the Portland International Airport, but only if such service is provided pursuant to a written contract between the Port of Portland and the Luxury Transportation provider and such service is in accordance with all of the other criteria contained in paragraphs a., b., c., d., e., and g.

G. Premium rates (i.e., rates which are consistently and substantially higher than the prevailing rates charged by licensed taxicab companies within the City of Portland).

Shuttle Transportation: Transportation provided in a motor vehicle:

A. Over a fixed route and time schedule; or,

B. Other than a fixed route and time schedule for:

1. Transportation originating at Portland International Airport; or,

2. Transportation originating in the City of Portland where the destination is Portland International Airport; and,

3. Only if the transportation provider has a valid Port of Portland
Ordinance 351 Permit; and,

4. The shuttle operator provides regular, ongoing transportation service
with a vehicle used exclusively for shuttle service where service at a
minimum includes:

a. Van(s) or bus(es), commonly recognized by the industry as "shuttle" transportation vehicles, capable of carrying multiple passengers and their luggage; and,

b. Vehicles maintained in a clean and safe condition; and,

c. The full name and telephone number of the service company permanently displayed on the outside of the vehicle, on both sides, and the phrase, "airport shuttle," included either as part of the company name, or as a description of the type of service provided; and,

d. A vehicle that is not equipped with a fare meter or top light normally utilized by permitted taxicabs; and,

e. Service by prior day reservation only, meaning restricted to requests by prior day arrangement, except that service may be made available on demand when originating at the Portland International Airport; and,

f. Established rates, when compared on a single-passenger basis, that are consistently and substantially lower than the maximum meter rate allowed by Taxicab Regulations; and,

g. Service is multi-stop, shared-ride service, and does not promise direct non-stop service.


1 For the purposes of this paper, taxicab service is defined as service which the "average" consumer might enjoy, and hence does not directly address issues particular to agency requested transportation (ART) or specially attended transportation (SAT).

2 Vehicles must be less than five years old, and companies must provide proof of insurance and a $1,000 deposit.

3 Legal definitions distinguishing "shuttle service" and "luxury transportation" from taxicab service are included in Appendix C.

4 At low speeds, generally less than 10 mph (the "crossover point"), the meter switches from calculating mileage to calculating time.

5 Taxicabs are permitted to use the bus lanes for through travel from 7:00 p.m. to 6:00 a.m. Monday through Friday, and all day on Saturdays, Sundays, and on holidays. Town cars, however, are currently prohibited from using the bus lanes at any time.

6 See the list of survey respondents in Appendix A.

7 This includes federal, state, and local government operating subsidies and capital grants.

8 As evidence, the mode share of work trips in the Portland MSA for mass transit fell in 1980-1990 from 8.4% to 5.4%, while the share for carpool was relatively stable. Metro-wide, the 1990 carpool share was 12.3%. Unfortunately, a separate figure for taxicabs is not available.

9 Most full-time drivers already have three or more years of experience, at which point they are at the top of the pay scale.

10 Tellingly, literature provided by the Department lists bus and taxi drivers together under the same job profile, #6142, as they require the same aptitudes (eye-hand-foot coordination, quick reflexes, ability to judge distances, etc.).

11 Section 16.40.001 (Purpose) of the Code, amended in December 1997.

12 In addition to the cities listed in Exhibits 1 and 2, Jacksonville, New Orleans, Memphis, and Washington D.C were also contacted but declined to respond. A sample survey is included in Appendix B.

13 City of Portland regulatory staff sometimes use the term "public utility" to denote "common carrier".

14 Many regulators rely on data from other cities to establish fleet sizes and fare levels.

15 The Taxicab Board of Review has never defined what this means exactly (Hamilton, 1998e). While this requirement could be operationalized, it does point out a complication of the regulatory approach. The fact that this requirement exists at all, however, seems to acknowledge that a monopoly market structure exists.

16 For an excellent review of the causes of congestion and potential solutions, readers are encouraged to read Anthony Downs' Stuck in Traffic.

17 Similarly, the direct and more equitable approach to reducing problems of aggressive driving is strict enforcement of traffic regulations.

18 To a certain extent, then, the goal of creating a market where consumer and producer benefits are maximized is pursued only insofar as it is convenient to do so (which also explains the establishment of uniform rates, which are easier to administer).

19 Pedestrians attempting to signal the attention of a passing taxicab are likely to be greeted with a polite nod of the head, a blank stare, or complete disregard as the empty vehicle passes them by. Local industry representatives reply that residents of west coast cities "are simply not used to hailing cabs", and therefore taxicab drivers "are not used to looking for hailers" (Allen, 1978; Entler, 1997; Hamilton, 1997a). Yet in San Diego, for instance, which has a population density similar to that of Portland but has a much less concentrated industry, actual survey data reports over 8% of total trips are street hails.

20 This is demonstrated by the success of low-cost, no-frills airline service after deregulation in that industry.

21 In comparison, licenses in Indianapolis, which has an open entry policy, cost only $102.

22 This cost will fluctuate to reflect the condition of the vehicle, which is transferred with the license. Other equipment such as taximeters and toplights are supplied by the company for quality control. While Radio Cab does not buy back its licenses, its members must approve any new owner-drivers, who must have driven at least 6 months for the company.

23 As most cities restrict entry and service, most of these fares will be inefficiently high, and market conditions vary too much from city to city to make direct comparison possible.

24 A high concentration of market power, which has not changed significantly in the last 20 years, encouraged Portland's two largest taxicab companies to trade days at high-yield taxicab stands in the past, which had been segregated for exclusive company use presumably to foster competition (Allen, 1978).

25 One only need look to the airline industry, where huge up-front fixed costs were also presumed to be insurmountable, to see how deregulation can entice new entrants to provide traditional and niche services efficiently and profitably.

26 The hypothetical airport trip modeled for Portland also does not include the airport gate fee which customers are required to pay.

27 The current maximum flag drop of $2.50 actually represents a reduction from a suggested drop charge of $5.00 (a Board recommendation; Hamilton, 1998d).

28 One can only imagine the public outcry that would result, for instance, if new policies required rental car customers, upon deplaning, to wait in a line and to accept the first vehicle that approached them (perhaps all vehicles would be Geo Metro's) at some fixed price; yet this is exactly the manner in which taxicabs are deployed.

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A 501(c)(3) nonprofit organization, Cascade neither solicits nor accepts government funding, but instead relies entirely on private contributions.

Nothing written here should be construed as an attempt to aid or hinder the passage of any legislation or as and endorsement of any candidate or initiative.

Cascade Policy Institute 813 S.W. Alder, Suite 450 Portland, OR 97205
Phone: (503) 242-0900
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