- The Washington Times - Monday, March 18, 2002

Mayor Anthony Williams is the latest major Washington official to propose that meters be installed in D.C. cabs. This time the proposal may be adopted.
For years, Congress mandated a zone system, because members of Congress, staff, lobbyists, and others cherished the right to travel between Capitol Hill and Downtown for the same fare as those traveling just a few blocks. But that requirement was dropped years ago.
First, let's restate the often-heard comment that "D.C. has the best taxi system in the U.S." Why? Because entry isn't regulated, except for competency, insurance and the like. Unlike New York, for instance, D.C. doesn't limit the number of operators. Anyone with basic skills and a modicum of capital can get into the taxi market. The vast majority of operators are sole entrepreneurs, not drivers for taxi fleets. They are businessmen and businesswomen. Free entry makes the D.C. taxi market much more efficient.
But the system is not as efficient as it could be. Sure, there is the problem of zone pricing, and this does lead to inefficiencies. For example, with more cost-based pricing, more people traveling between the Capitol and Downtown would use the Metro. But this is more of a nuisance than a substantial flaw in the taxi market. By and large, taxi drivers cannot pick and choose their routes, being dependent on passengers' preferences. So, the lucky and unlucky fares tend to even out.
The more serious problem is that there is no price competition among operators. In regulating fares, the D.C. Taxicab Commission establishes the overall combination of price and service in the market, very much like the old Civil Aeronautics Board's regulation of fares established service levels for airlines in the 1960s and 1970s (as evidenced by average load factors or the availability of seats). Raising taxi fares may benefit operators in the short run, but soon those extra returns will be dissipated by the entry of new entrepreneurs, who will bring up the level of service. That is, cabs will cruise empty a larger fraction of the time, but customers will have shorter waits.
The D.C. Taxicab Commission recognized this some time ago, when it authorized peak fares for certain times of the day and for inclement weather. The reason is that there was a widespread drop in service during these times, because it simply wasn't remunerative for the operators. Even though pricing differentials do now exist, the problem hasn't been solved entirely, since there are peaks and valleys throughout the day as well as variations due to the weather and the nature of traffic.
A way of solving both the problem of the D.C. Taxicab Commission's inability to determine the appropriate overall level of service and the problem of uneven demands, is to turn this over to the market, just as we have in the case of airlines, trucking, and most other services.
Suppose that D.C. taxi operators installed "light bars" on top of their cabs, much like the ones we see on police cars. The lights would be controlled by the driver, and their purpose would be to alert potential customers whether the cab was in commercial service and also the price demanded. Although one can think of many variations, here's just one suggestion. Each taxi would have five lights on top. No lights lit would mean the cab was out of service. Three lights lit would mean the normal zone fare would be charged for the service requested by the customer. Four lights would mean a 50 percent surcharge; five lights would mean double the fare. Two lights would mean a 25 percent surcharge, and one light would mean half-fare.
Thus, cab operators could compete on the basis of price. They could search for passengers willing to pay the fare they demanded. Customers could search for cabs willing to provide service for the price they demanded. It would all work seamlessly, just as markets do almost everywhere else. The system of competition would gravitate toward the appropriate combination of price and service. Price competition would also eliminate swings in the pattern of "shortages" and "surpluses" of cabs with which we are all familiar.
Some may object that allowing price competition would lead to traffic problems, as operators "competed" for passengers. But that's the case now. If anything, the problem would be lessened, since there would be fewer potential windfalls for operators. Customers would be less likely to run out into the streets during peak times or during inclement weather, competing with each other for the attention of an operator, as the rationing price would rationalize demand and increase supply.
Many taxi operators may object to having to install lights, just as a number have objected to having to install meters. Why not give them a choice, or several choices? For example, taxi operators could continue as today with no lights and the zone system, except they would have to charge the standard zone fare no surcharges or discounts. Or, they could install meters, but no lights, in which case they would have to charge the standard metered fare. Finally, if they chose, they could install both meters and lights, and then price compete by offering surcharges and discounts from the metered fare. Consumers could readily recognize the type of cabs available and the prices charged, and make their decisions accordingly. Price competition would lead to a more efficient taxi system, in which operators were better compensated and consumers were better served.
If the D.C. government really wants to improve taxi service, it will build on Mr. Williams' proposal by finding ways to allow competition on the basis of price.

James C. Miller III is Counselor to Citizens for a Sound Economy Foundation

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