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?