By William Thompson
Imagine an industry where two companies control 75% of the market, price-competition is non-existent, and new firms are prohibited from entering. While economists refer to this as an oligopoly, taxi customers in Portland know it best as high prices and long wait times.
On April 9, 2008, the Private for Hire Transportation Review Board voted down a proposal to end the long-standing moratorium on new taxi permits. Leaders cited the need of a “market-demand” study (at a cost of $130,000) before moving forward. But elsewhere in the economy, no such studies are necessary. When entrepreneurs introduce new goods or services, consumers vote with their dollars to determine whether or not there is a “market demand.”
Prohibiting new businesses inevitably raises the cost of service to consumers. The Review Board demonstrated that itself earlier that same morning by sponsoring an “emergency ordinance” which the City Council approved to increase the maximum rate taxi drivers can charge.
This is just the latest example of the price gouging allowed by the Review Board. When Broadway Cab acquired Sassy Cab in October 2007, effectively decreasing competition, the board said nothing. Yet, when numerous town car companies began charging prices below the required minimum shortly thereafter (thus increasing competition and lowering prices for consumers), the board acted swiftly to increase enforcement of the mandatory “minimum price”.
Instead of awaiting approval to spend $130,000 on a “market demand study,” here’s one for free: Disallowing new companies from entering the market and restricting price competition lowers the quality of service customers receive and raises the price they must pay. The Review Board should just get out of the way and allow customers themselves to determine how many taxis the city needs.
William Thompson is a research associate at Cascade Policy Institute, Oregon’s free market research center.