Taxi Pricing: Hail or Call?

(Photo: Savio Sebastian)

I called a taxi for a short trip in Melbourne, Australia.  When I paid the price on the meter, the driver added a $2 booking fee.  This is standard here, unlike in the U.S. where the price is the same whether you hail or call a taxi.  

The Australian system may be a sensible way to set price to cover marginal cost.  The booking service generates costs; and in many cases the booked driver “dead-heads” to pick up the passenger, using his valuable time without generating revenue.  On the other hand, having a booked fare saves the driver time waiting in a queue or cruising, so perhaps the impact on marginal cost isn’t so clear.  Is this monopoly pricing, or price reflecting cost?

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  1. Not-a-Taxi-Driver says:

    It also depends on the length of the trip. $2 is a big gash for a 5 minute ride, but not so bad to get to an airport 15+ miles away. I would pay a premium to book a cab while others wait at a cab stand or try to flag one down, as long as the premium is not a large percentage of the initial fare. If I am desperate, any premium is fine, as long as I get where I need to be on time.

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    • Bryan Larsen says:

      I agree with you, but it doesn’t seem very rational. You’re paying $2 to avoid the time & hassle of flagging a cab. That time & hassle you’re saving is the same whether it’s a $7 ride or a $70 one.

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  2. Luca M. D'Aiuto says:

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  3. dagger says:

    Just to share the Singapore experience, we have a booking premium as well as additional surcharges depending on location of pickup, time of ride, and type of taxi (see http://www.taxisingapore.com/taxi-fare/ for a summary)

    What happens here is that it creates strange incentives on the part of drivers to maximise earnings. For example, in the half-hour before the midnight surcharge kicks in, it is almost impossible to hail a cab. Similarly, the financial district at night sees herds of empty taxis driving around with busy signs on, waiting for frustrated passengers to call in and book a cab instead.

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    • Andrew says:

      Is there even technically a fine system in place if the government wanted to come after these drivers that don’t pick up a fare if they have no passengers?

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      • dagger says:

        All taxi drivers belong to one of seven (at last count) companies, which are overseen by at statuary body. In theory, these companies have to adhere to minimum standards of services, failing which they may be liable to be fined, which has happened before. The service standards of the individual drivers would fall under their respective companies.

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  4. Benjamin Anderson says:

    I would venture a guess at neither (in the strict sense of “monopoly” pricing) as third degree price discrimination is a likely candidate.

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  5. Joe says:

    Seems to me that this is a way of shifting short distance trips to flag cabs down on the street, which is fine if you assume they want to have cabs running about on the street all the time. You still book when it’s important but random trips from bars or whatnot you wait and flag someone down. It’s also a way of charging a bit more to come from areas that are sketchier.

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  6. OnceACabDriver says:

    The $2 is not about the booking service cost, the driver doesn’t pass it on. On the other hand, most Australian taxis notoriously make a 10% surcharge for non-cash payments which makes the booking service used by most of them immensely profitable. (This is worthy of Freakonomics scrutiny: how can you have an over-priced monopoly in a business which is supposedly intensely competitive?)

    So the $2 is for the dead running, but I don’t think it’s very effective. When demand is low, a driver will run almost any distance for an assured fare, $2 or not. And when demand is high the driver will almost certainly be better off getting their business off the street. So it’s only a useful incentive for ‘shoulder’ periods.

    Taxi pricing is another good subject for Freakomics. Last time I looked, fares in NY were roughly half the fares in Sydney. But the NY cabbies made 50% more than Sydney cabbies. Does this mean Sydney prices are on the wrong side of the bell curve?

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  7. medusaoblongata says:

    In Paris, I called a cab to take me from my hotel to the airport, and he showed up with 22 Euro on the meter. I argued with him to reset it, but he refused. I wanted to get out and just find another cab, but he was late, and I didn’t have time to find another and still make it to the airport on time.

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    • Nath says:

      That’s normal, that is how it works in Paris…
      When you call a cab, you pay for the ride since the driver answers, wherever he is…
      But in general that’s no more than 10 €, he gave you the tourist treatment ;)

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  8. Jon Manning says:

    Daniel,

    It might have been more interesting if you’d paid by credit card. Then you would have discovered there is a 10% surcharge on your fare. Now that’s an interesting question – captive market, segmentation (corporates pay on credit card), etc.

    Jon

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