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?


Not-a-Taxi-Driver

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.

Bryan Larsen

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.

Luca M. D'Aiuto

Well here in the U.S., when you step in a taxi its an automatic $3 charge shown on the meter. But I'm just complaining because I spent $222.35 on a taxi from La Guardia airport to Northport on LongIsland only because it was 3:30 am and had to work a double starting at 9 am. Taxis were lined up with plenty of customers waiting, and I wasn't going to wait 2 hours for the shuttles. My plane ticket to california AND BACK was $625.78. Because of my lack in time to sleep before my double shift at work, my pocket had to pay 1/3 of my plane ticket for 2,950 miles less than the flight.

dagger

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.

Andrew

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?

dagger

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.

Benjamin Anderson

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

Joe

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.

OnceACabDriver

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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medusaoblongata

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.

Nath

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 ;)

Jon Manning

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

dagger

It's like you read the minds of the taxi operators in Singapore (again, if I may with the Singapore case studies) Extra charges of $0.30 and 10% of metered fares on use of debit and credit cards respectively. Payment behaviour is altered enough that less than 1% of fares are paid using credit cards. This has led Visa to write in to the largest taxi operators to demand its removal as it is a violation of contract terms:

http://www.channelnewsasia.com/news/singapore/no-visa-transactions-for/739784.html

Matt

I don't know about everywhere in the US, but here in DC there is definitely a "dispatch fee" of a couple dollars for calling a cab - if it actually shows, which is a toss up. Thank god for Uber.

Mr T

I am from Melbourne. Imagine my surprise and delight to see a picture of one of our taxis doing a hook turn (turning right from the left lane at the end of the traffic light cycle - a unique road rule we have in Melbourne because of the trams that cross on the intersection pictured)

Taxis are heavily regulated. The booking fee is a charge allowed by the Government. (the regulation is state based, so your comments may not be applicable to taxis in other cities in Australia)

My recollection is that the booking fee was introduced after a review of the taxi industry a few years ago, to cover the costs of the taxi booking system.

Since that time, I understand that a growing proportion of bookings is done by app rather telephone which is more efficient (utilising GPS data etc). But no move to reduce the charge

AKelly

Goodness, you guys all have it so easy..

In Glasgow we have a two tier system.

black cabs and private cars.

if you hail a black cab, or queue for one, then if you leave the boundary of Glasgow then you get hit with a 25% surcharge. If you call a black cab, you don't pay the surcharge.

you can't hail a private cab, its illegal for them to pick up without being pre-booked. They don't charge boundary fees, and whilst their mileage rates used to be cheaper, they are pretty much the same now as the black cab mileage.

simple, eh?

Paul

I think $2 is a reasonable charge. Another consideration is that the people most likely to book a taxi are probably further away from typical taxi routes in the first-place, meaning that it is more likely to be out-of-the-way of the taxi driver, and the $2 is also more likely to be a smaller percentage of the overall cost of the trip since there is a higher likelihood that the taxi will be taking the passenger on a longer trip as well.

Additionally (just a side note) we do have $2 booking fees in the US, though that may not be standard across the country.

pauliticalpundit.com

Brian

In some cities in China, a smartphone app is used to match taxis and passengers. Passengers can actually offer varying surcharges. So it's almost like a live auction for taxi services

Justin Scott

Here in Melbourne, the Victorian State Government had just handed down a major review of the taxi industry and it looks like the 10% non-cash surcharge will be getting reduced to a slightly less abhorrent 5% or so. The problem we have over here is that the payment systems are controlled by a monopoly, who at the moment charge what they like...