FTC Staff Comment Before the Montgomery City Council Concerning Bill 54-87 to Reform the Regulation of Taxis

BUREAU 01' CQMPElITIQN
UNITED 51 A TES OF AMERICA
FEDERAL TRADE CO~1~ISSION
WASHINGTOt\, D.C. 20S80
~urm'~I~~mN 	AUiHORllED
1
February 	22, 	1988
Mr. 	Michael 	L. 	Subin, 	President
Montgomery 	County 	Council
100 	Maryland 	Avenue
Rockville, 	Maryland 	20850
Dear Mr. 	Subin:
The 	staff 	of 	the 	Federal 	Trade 	Commission l 	is 	pleased 	to
respond 	to 	an 	invitation 	from 	the 	Montgomery 	County 	Council's
legislative 	staff 	to 	comment 	on 	Bill 	54-87, 	the 	proposed 	new
taxicab 	law 	for 	Montgomery 	County, 	and 	the 	six 	proposed
amendments 	to 	the 	bill. 	The 	invitation 	requested 	us 	to 	provide
oral 	tes~imony at 	the 	public 	hearing 	on 	the 	legislation, 	and 	we
will 	be 	glad 	to 	testify. 	This 	written 	statement 	summarizes 	the
essence 	of 	our 	testimony. 	We 	hope 	it will 	be 	useful 	to 	you 	and
the 	other members 	of 	the 	Council 	as 	you 	consider 	the 	proposedI
law.
Bill 	54-87 	would 	abolish 	existing 	taxicab 	fares 	and 	require
the 	County 	Executive 	to 	set 	new 	fares 	by 	regulation. 	It 	would
link 	the 	number 	of 	taxi 	licenses 	authorized 	to 	the 	County's
population 	and 	distribute 	the 	licenses 	available 	under 	this
scheme 	by 	lottery 	among 	the 	eligible 	applicants. 	While 	this
program 	would 	greatly 	expand 	the 	supply 	of 	licenses 	and 	thereby
benefit 	consumers, 	we 	suggest 	that 	the 	County 	adopt 	proposed
Amendments 	Nos. 	land 	5, 	which would 	let 	market 	forces 	determine
both 	the 	number 	of 	cabs 	and 	the 	fares 	charged. 	This 	approach 	is
likely 	to 	help 	consumers 	more 	than 	would 	the 	adjustments 	to 	the
e'xisting 	regulations 	proposed 	in 	Bill 	54-87. 	Freer 	entry 	into
the 	taxicab 	market 	and 	unregulated 	fares 	is 	likely 	to 	benefit
Montgomery 	County 	residents 	and 	visitors 	by 	increasing 	the 	number
of 	taxicabs, 	thus 	reducing 	waiting 	times 	for 	taxis, 	creating
employment 	opportunities, 	and 	lowering 	fares.	,
This 	letter 	represents 	the 	views 	of 	the 	Federal 	Trade
Commission's 	Bureaus 	of 	Competition, 	Consumer 	Protection, 	and
Economics, 	and 	not 	necessarily 	those 	of 	the 	Commission 	itself 	or
any 	individual 	Commissioner. 	The 	Commission 	has, 	however, 	with
Ccmmissioner 	Bailey 	dissenting, 	voted 	to 	authorize 	submission 	of
these 	comments.

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We 	believe 	the 	costs 	of 	Montgomery 	County's 	current
regulatory 	scheme 	are 	substantial. 	We 	estimate 	that 	the
regulations 	cost 	taxicab 	consumers 	at 	least 	$1,152,000 	annually
in 	excessive 	fares. 	In 	addition 	to 	this 	cost, 	consumers 	may
suffer 	long 	waiting 	times 	resulting 	from 	the 	shortage 	of 	cabs.
Qualified 	drivers 	desiring 	entry 	into 	the 	market 	may 	also 	be
harmed. 	A new 	driver 	would 	have 	to 	purchase 	a 	medallion 	from 	a
current 	holder, 	if 	he 	could 	find 	one 	willing 	to 	sell, 	at 	a 	price
informally 	estimated 	to 	be 	about 	$30,000. 	The 	costs 	of 	waiting
time 	to 	passengers 	and 	of 	lost 	opportunity 	to 	potential 	drivers
are 	not 	easily 	quantified, 	but 	we 	believe 	that 	they, 	too, 	are
significant.
The 	Federal 	Trade 	Commission's 	Experience
With 	Taxicab 	Dere~ulation
The 	staff 	of 	the 	Federal 	Trade 	Commission, 	with 	the 	approval
of 	the 	Commission, 	upon 	request 	by 	federal, 	state, 	and 	local
governmental 	bodies, 	analyzes 	regulatory 	proposals 	to 	identify
provisions 	that 	may 	impede 	competition 	or 	increase 	costs 	without
countervailing 	benefits 	to 	consumers. 	The 	staff 	has 	submitted
comments 	on 	taxicab 	regulation 	to 	the 	city 	governments 	of 	New
York, 	Seattle, 	San 	Francisco, 	Cambridge, 	Massachusetts, 	and 	the
District 	of 	Columbia, 	as 	well 	as 	to 	the 	Alaska 	and 	Colorado 	state
legislatures. 	In 	addition, 	the 	Commission 	issued 	administrative
complaints 	in 	1984 	against 	Minneapolis 	and 	New 	Orleans,
challenging entry 	restrictions 	and 	price 	restraints 	imposed 	by
those 	cities. 2
In 	1984, 	two 	economists 	in 	the 	Commission's 	staff 	completed
a 	study 	of 	taxicab 	regulation. 3 	Based on 	an 	analysis 	of 	taxicab
regulation 	in 	cities 	throughout 	the 	country, 	the 	authors
concluded 	that 	restrictions 	on 	the 	number 	of 	taxicabs,
prohibitions 	on 	fare 	competition, 	and 	restrictions 	on 	shared 	ride
or 	jitney 	service 	harm 	consumers 	and 	impose 	a 	disproportionate
burden 	on 	low 	income 	people, 	including 	the 	elderly 	and
2 	The 	complaints 	stated 	that 	the 	Commission 	had 	reason 	to
believe 	that 	each 	city, 	acting 	in 	concert 	with 	local 	cab
companies, 	had 	violated 	the 	antitrust 	laws 	by 	restricting 	entry
into 	taxicab 	markets 	and 	by 	adopting 	uniform 	fares. 	The
complaints 	were 	withdrawn 	following 	Louisiana's 	enactment 	of 	a
law 	expressly 	permitting 	its 	cities 	to 	regulate 	taxicabs 	in 	an
anticompetitive 	manner 	exempt 	from 	the 	antitrust 	laws, 	and
Minneapolis'S 	amendment 	of 	its 	City Code 	to 	permit 	more
competition 	among 	taxicabs.
Frankena 	and 	Pautler, 	An 	Economic 	Analysis 	of 	Taxicab
Regulation, 	FTC 	Bureau 	of 	Economics, 	May, 	1984 	("Taxicab
Regulation") .
2

handicapped, 	many 	of 	whom 	are 	more 	reliant 	on 	taxi 	service 	and
expend 	a 	greater 	share 	of 	their 	income 	on 	taxi 	transportation
than 	the 	general 	population. 	Another 	1984 	study, 	commissioned 	by
the 	u.s. 	Department 	of 	Transportation, 	confirms 	the 	main
conclusions 	of 	the 	FTC 	staff 	economists' 	report. 	The 	DOT 	study
concluded 	that 	regulations 	restricting 	entry 	of 	new 	taxicabs 	and
preventing 	discounting 	of 	fares 	cost 	co~sumers nearly 	$800
million 	annually 	in 	higher 	fares, 	and 	resulted 	in 	38,000 	fewer
jobs 	nationwide 	in 	the 	taxi 	industry.4
The 	Benefits 	of 	Deregulation
The 	benefits 	of 	taxi 	deregulation 	are 	not 	theoretical 	~
they 	are 	real 	and 	immediate. 	For 	example, 	Seattle 	deregulated
its 	taxis 	in 	1979. 	One 	author 	estimates 	that 	between 	1979 	and
1983 	over 	200 	new 	jobs 	for 	taxi 	drivers 	were 	created 	there 5 	and
that 	price 	regulation 	increased 	cab 	fares 	there 	by 	about 	11-15
percent. 6 	While 	data 	to 	measure 	the 	effects 	on 	waiting 	time 	are
often 	not 	available, 	in 	San 	Diego 	the 	average 	waiting 	time 	in 	the
radio-dispatched 	market 	declined 	20 	percent 	after 	deregulation,
and 	the 	average 	waiting 	times 	at 	major 	cab 	stands 	became
negligible. 	In 	Seattle, 	waiting 	times 	likewise 	decreased
significantly, 	and 	no 	municipality where 	taxicab 	entry 	has 	been
deregulated 	has 	reported 	an 	increase 	in 	waiting 	times. 7
Virtually 	all 	cities 	that 	have 	changed 	to 	open 	entry 	have
experienced 	an 	~ncrease in 	the 	nurrber 	of 	firms 	in 	the 	taxi
industry 	and 	a 	decrease 	in 	the 	market 	shares 	of 	the 	largest
firms. 	In 	some 	cities, 	entire 	new 	fleets 	have 	entered 	the 	radio-
dispatched 	segment 	of 	the 	market. 	For 	example, 	in 	Oakland, 	two
new 	fleets 	entered with 	76 	and 	14 	cabs, 	and 	in 	Sacramento,
Portland, 	and 	Charlotte, 	new 	fleets 	entered 	with 	27, 	15, 	and 	14
cabs, 	respectively. 	In 	Phoenix, 	new 	firms 	accounted 	for 	20
percent 	of 	radio-dispatched 	trips. 	In most 	cities, 	the 	number 	of
independent 	owner-operators 	also 	increased 	significantly.8
4 	UMTA, 	u.S. 	Department 	of 	Transportation, 	Regulatory
Impediments 	to 	Private 	Sector 	Urban 	Transit 	85 	(1984).
5 	Zerbe, 	Seattle 	Taxis; 	Deregulation 	Hits 	a 	Pothole,
Regulation 	43, 	44, 	Nov/Dec. 	1983 	(copy 	attached).
6
7
8
Taxicab 	Regulation, 	supra 	note 	3, 	at 	117.
~. 	, 	at 	115.
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Will 	open 	entry 	diminish 	quality 	of 	service? 	The 	FTC 	staff
economists 	concluded 	that 	quality 	did 	not 	deteriorate 	following
the 	lifting 	of 	entry 	restrictions 	in 	other 	cities. 	Safety
regulations, 	such 	as 	requirements 	for 	driver 	training 	and
knowledge, 	vehicle 	safety, 	and 	liability 	insurance, 	may 	be
justifiable 	as 	a 	means 	of 	protecting 	consumers 	against 	abuse. 	We
note 	that 	the 	proposed 	Montgomery 	County 	law 	contains 	several
such 	provisions.
A major 	benefit 	of 	deregulation 	is 	the 	ease 	with 	which 	a
competitive 	market 	can 	make 	the 	continual 	adjustments 	needed 	to
accommodate 	market 	changes 	over 	time. 	The 	problem 	with 	both
Montgomery 	County's 	current 	approach 	and 	the 	reform 	proposed .in
Bill 	54-87 	is 	the 	extreme 	difficulty 	of 	determining
administratively 	how 	many cabs 	are 	needed 	and 	what 	fares 	fihpuld
be 	charged. 	Even 	if 	the 	number 	of 	taxicab 	licenses 	available
under 	the 	proposed 	law'S 	population-based 	formula 	and 	the 	level
of 	fares 	set 	by 	the 	county 	were 	to 	simulate 	a 	competitive 	market
initially, 	an 	administrative 	apparatus 	is 	unlikely 	to 	be 	able 	to
respond 	to 	subsequent 	needs 	for 	change 	as 	quickly 	and 	easily 	as
can 	free 	competition. 	Montgomery County's 	situation 	is
complicated 	by 	the 	lack 	of 	comparable 	counties 	to 	serve 	as
obvious 	models 	for 	regulation. 	As 	a 	report 	commissioned 	by 	the
Montgomery 	County 	Department 	of 	Transportation 	points 	out, 	"It
becomes 	apparent 	early 	in 	this 	study 	that 	there 	were 	few 	counties
or 	other 	jurisdictions 	which 	were 	unquestionably 	similar
demographically 	to 	Montgomery County."g 	Because 	of 	its
singularity, 	the 	County 	ca~not draw 	on 	others' 	experience 	to
forecast 	taxi 	demand 	or 	to 	determine 	the 	level 	of 	fares
appropriate 	to 	meet 	that 	demand 	without 	~sing sophisticated
statistical 	techniques. 	Even 	with 	the 	use 	of 	such 	techniques,
significant 	errors 	are 	likely 	to 	result. 	Under 	these
circumstances, 	we 	believe 	that 	permitting market 	forces 	to
determine 	the 	number 	of 	taxicabs 	and 	the 	fares 	charged 	is 	the
best 	course 	of 	action.
Montgomery 	County's 	Pa-ticular 	Suitability
for 	Deregulated 	Taxicab 	Service
Montgomery 	County 	is 	especially well 	suited 	to 	benefit 	from
deregulation 	of 	fares 	and 	free 	entry 	into 	the 	taxicab 	industry
because 	all 	Montgomery 	County 	taxicabs 	have 	radio-dispatch
equipment 	and 	almost 	all 	taxicab 	service 	in 	the 	county 	is
provided 	in 	response 	to 	telephoned 	requests. 	The 	radio-
dispatched 	segment 	of 	the 	taxicab 	industry 	functions 	particularly
Rys 	and 	Fischetti, 	A Compa;ison 	of 	EntQ' 	RequlatioD 	in
the 	Taxicab 	Industrv 	in 	Countie$ 	DemQgraphicallv 	Similar 	to
YoQntoome=y 	CQunty, 	Maryland, 	report 	prepared 	for 	the 	Department
Qf 	Transportation, 	Montgomery 	County 	Government, 	at 	1, 	2.
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well 	without 	regulation. 	Under 	free 	competition, 	customers 	who
receive 	poor 	or 	expensive 	service 	can 	easily 	choose 	another
dispatch 	service. 	Consumers 	can 	telephone 	and 	sample 	a 	number 	of
dispatch 	services 	to 	find 	the 	fare 	and 	quality-of-service 	mix
they 	prefer. 	Radio-dispatched 	cab 	companies 	can 	also 	benefit
more 	than 	can 	other 	taxi 	firms 	from 	disseminating 	information
about 	fares 	and 	services 	because 	their 	customers 	are 	apt 	to 	make
purchase 	decisions 	based 	on 	the 	information 	provided. 	They 	may
have 	an 	incentive, 	therefore, 	to 	advertise 	in 	the 	telephone
yellow 	pages, 	local 	newspapers, 	and 	"shopper" 	papers, 	to 	post
notices 	on 	community 	bulletin 	boards 	and 	to 	distribute 	fliers 	in
apartment 	buildings. 	Further, 	because 	of 	the 	preponderance 	of
radio-dispatched 	taxicabs 	in 	Montgomery 	County, 	the 	problems 	that
have 	arisen 	in 	other 	cities 	at 	airports 	and 	train 	stations 	ere
unlikely 	to 	arise. 10 	The 	Montgomery 	County 	Airpark 	relies
exclusively 	on 	taxicabs 	requested 	by 	telephone, 	and 	the 	,
relatively 	few 	taxicab 	stands 	in 	Montgomery 	County 	are 	likely 	to
be 	used 	by 	local 	residents 	and 	visitors 	familiar 	with 	the 	area
and 	with 	alternative 	transportation. 	At 	present, 	however,
consumers 	have 	little 	choice 	among 	taxicab 	services 	in Montgomery
County, 	as 	the 	entry 	restrictions 	now 	in 	effect 	make 	the
formation 	of 	new 	taxicab 	companies 	extremely 	difficult .
. Proposed 	Amendment 	No. 	1 would 	eliminate 	the 	cap 	on 	the
number 	of 	taxicab 	licenses 	issued 	in Montgomery 	County. 	We
therefore 	urge 	you 	to 	consider 	its 	benefits. 	Proposed 	Amendment
No.2 	would 	phase 	out 	Bill 	54-87's 	population-based 	cap 	on
taxicab 	licenses 	after 	~99C; 	while 	this 	would 	be 	preferable 	to
continuing 	to 	limit 	the 	number 	of 	licenses, 	it 	would 	merely
postpone 	the 	benefits 	of 	competition, 	which 	Amendment 	No. 	1 	would
make 	available 	immediately. 	Similarly, 	Amendment 	No. 	3 would
increase 	the 	number 	of 	new 	taxicab 	licenses 	to 	be 	made 	available
in 	1988 	from 	40 	to 	60. 	While 	60 	new 	licenses 	would 	be 	better 	for
consumers 	than 	40, 	this 	amendment 	would 	not 	permit 	the
flexibility 	in 	response 	to 	demand 	that 	open entry would 	allow.
Given 	consumers' 	ability 	to 	prevent 	above-cost 	pricing 	by
choosing 	among 	competing providers 	of 	taxicab 	services, 	the
market 	will 	function 	best 	if 	taxicab 	operators 	are 	given 	complete
freedom 	to 	vary 	fares 	in 	accordance 	with 	differences 	in 	the 	costs
of 	providing 	service. 	For 	example, 	costs 	may vary 	with 	respect
to 	particular 	areas 	or 	at 	particular 	times, 	and 	if 	operators 	are
prevented 	from 	adjusting 	their 	prices 	in 	response, 	service
10 	When 	Seattle 	deregulated 	taxicab 	fares, 	no 	problems
were 	reported 	in 	the 	market 	for 	radio-dispatched 	taxis; 	problems
of 	overcharging 	arose 	only 	with 	where 	taxicabs 	were 	chosen 	from 	a
cab 	line, 	at 	the 	airport 	and 	the 	train 	station, 	where 	price
competition 	was 	difficult 	because 	customers 	are 	unlikely 	to
refuse 	to 	take 	the 	first 	taxi 	waiting 	in 	line. 	Taxicab
Regulation, 	at 	129.
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shortages 	are 	likely 	to 	develop. 	Moreover, 	a 	study 	of
deregulation 	in 	Seattle 	indicates 	that 	variations 	in 	fares
unrelated 	to 	the 	costs 	of 	providing 	service 	do 	not 	occur 	in
deregulated, 	radio-dispatched 	taxicab 	markets. 	The 	only
problems 	of 	this 	sort 	that 	did 	arise 	in 	Seattle 	occurred 	at 	the
airport 	and 	Amtrak 	station 	cab 	stands; 	moreover, 	they 	occurred
only 	before 	a 	fare 	ceilin~ was 	imposed. 	Fare 	variations
unrelated 	to 	cost 	no 	longer 	appear 	to 	be 	a 	problem 	in 	Seattle. 11
In 	general, 	problems 	with 	fare 	deregulation 	have 	been 	confined 	to
taxi 	service 	at 	major 	airports 	and 	intercity 	train 	stations.
Although 	such 	experience 	suggests 	the 	desirability 	of 	fare
ceilings 	in 	certain 	circumstances, 	Montgomery 	County, 	which 	has
no 	major 	airports, 	seems 	unlikely 	to 	experience 	problems 	of 	this
sort. 	When 	customers 	can 	choose 	among 	fares 	quoted 	over 	the'
telephone, 	fares 	that 	do 	not 	reflect 	the 	cost 	of 	service 	quickly
become 	untenable. 	Permitting 	operators 	to 	change 	fares 	freely
also 	would 	serve 	as 	an 	incentive 	to 	innovation 	and 	would 	allow
adaptation 	to 	changing 	market 	conditions.
Proposed 	Amendment 	No. 	5 	would 	eliminate 	regulation 	of
fares 	altogether. 	We 	therefore 	support 	its 	adoption. 	Amendment
No. 	6 would 	retain 	County 	regulation 	of 	fares 	but 	would 	permit
development 	of 	a 	fare 	system 	designed 	to 	encourage 	ride-
sharing. 	Although 	we 	believe 	this 	amendment 	would 	benefit 	the
citizens 	of 	Montgomery 	County 	less 	than 	complete 	deregulation 	of
fares, 	we 	consider 	it 	preferable 	to 	the 	existing 	fare 	provisions
of 	the 	Montgomery 	County Code. 12 	We 	ex~ect, 	of 	course, 	that
complete 	deregulationl of 	fares, 	as 	proposed 	in Amendment 	No.5,
would 	result 	in'discounted 	fares 	for 	ride-sharing 	that 	would
reflect 	the 	lower 	per-person 	cost 	to 	the 	taxi 	operator. 	If 	the
County 	Council 	decides 	against 	Amendment 	No.5, 	however, 	we 	would
recommend 	that 	Amendment 	No. 	6 	be 	strengthened 	so 	as 	to 	allow
fare 	discounting 	on 	all 	taxicab 	services, 	not 	only 	on 	shared
rides. 	While 	a 	strengthened 	Amendment 	No.6 	would 	offer 	no
protection 	against 	shortages 	and 	refusals 	of 	service 	whenever
regulated 	fares 	do 	not 	cover 	the 	costs 	of 	service 	demanded, 	and
so 	is 	inferior 	to 	Amendment 	No.5, 	we 	would 	expect 	its 	adoption
to 	result 	in 	lower 	fares 	for 	consumers 	overall. 	Fare
discounting, 	in 	addition 	to 	benefiting consumers, 	would 	prevent
~r reduce 	the 	possibility 	that 	too 	many 	cabs 	will 	be 	attracted
into 	the 	market 	by 	artificially high 	regulated 	fares. 	~arket-
11 	The 	staff 	of 	the 	Seattle 	Regional 	Office 	of 	the
Federal 	Trade 	Commission 	reached 	this 	conclusion 	after 	contacting
the 	agencies 	that 	registered 	consumer 	complaints 	in 	1980, 	1982,
1986, 	and 	1987 	to 	determine 	the 	type 	and 	number 	of 	complaints 	received.
Bill 	54-87 	would 	repeal 	existing 	taxicab 	fares 	and
=e~uire the 	County 	Executive 	to 	establish 	taxicab 	rates 	by
regulation.
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determined 	fares, 	of 	course, 	would 	address 	such 	problems
automatically.
Regulation makes 	the 	cost 	of 	owning 	and 	driving 	a 	taxicab 	in
Montgomery 	County 	higher 	than 	it 	would 	be 	if 	there 	were 	open
entry. 	This 	is 	because 	the 	cost 	of 	taxicab 	licenses 	is 	passed 	on
to 	passengers 	through 	higher 	fares. 	The 	high 	market 	value 	of
taxicab 	licenses, 	informally 	estimated 	by 	observers 	in 	Montgomery
County 	to 	be 	about 	$30,000,13 	indicates 	that 	entry 	has 	been
restricted 	below 	the 	competitive 	level 	and 	that 	fares 	are 	higher
than they 	would 	be 	if 	competition 	existed. 	One 	method 	of
estimating 	the 	resulting 	injury 	to 	taxicab 	consumers 	is 	to
calculate 	the 	annual 	stream 	of 	profits 	necessary 	to 	make 	the
purchase 	of 	a 	$30,000 	license 	worthwhile. 	At 	a 	10 	percent 	~ate
of 	interest, 	an 	annual 	stream 	of 	$3,000 	would 	be 	necessary. 	This
means 	that 	a 	license 	holder 	must 	charge 	consumers 	$3,000 	a 	year
more 	than 	competitive 	rates 	in 	order 	to 	amortize 	the 	cost 	of 	the
license. 	When 	this 	figure 	is 	multiplied 	by 	the 	384 	licenses 	now
issued, 	the 	estimated 	annual 	consumer 	injury 	totals 	more 	than
$1,152,000. 	These 	regulation-induced 	profits 	are 	not 	necessary
to 	cover 	any 	of 	the 	real 	costs 	of 	providing 	service, 	nor 	is 	there
any 	evidence 	that 	monopoly 	profits 	actually 	foster 	regulatory
compliance. 	This 	amount 	is, 	in 	effect, 	a 	transfer 	of 	money 	from
consumers 	to 	license 	owne~s as 	a 	result 	of 	gaver~~ental
restrictions 	on 	the 	number 	of 	taxicab 	licenses. 	The 	County
could, 	in 	effect, 	transfer 	part 	of 	the 	future 	monopoly 	profits 	to
itself 	by 	auctioning 	the 	new 	licenses 	rather 	than 	giving 	them
away 	in 	a 	lottery. 	Deregulation 	of 	entry would 	eliminate 	this
transfer.
The 	current 	Montgomery 	County 	taxicab 	law 	provides 	for
waiver 	of 	the 	extra 	passenger 	surcharge 	for 	senior 	citizens.
This 	provision 	is, 	in 	effect, 	a 	discount 	to 	senior 	citizens
traveling 	together. 	While 	this 	provision 	sterns 	from 	an 	admirable
sentiment, 	we 	believe 	that 	deregulation 	of 	fares, 	combined 	with
,open 	entry 	for 	taxicabs, 	would 	serve 	senior 	citizens 	better 	than
the 	current 	scheme 	or 	a 	similar 	one 	established 	by 	the 	County
Executive 	under 	the 	proposed 	law. 	If 	drivers 	can 	identify
discount 	customers 	in 	advance, 	some 	may 	refuse 	such 	calls, 	just
as 	some 	may 	now 	refuse 	to 	take 	calls 	for 	short 	trips. 	Senior
citizens, 	therefore, 	may 	experience 	diminished 	levels 	of 	service
under 	the 	proposal, 	albeit 	at 	"discount" 	fares. 	Moreover, 	the
discounts 	to 	senior 	citizens 	traveling 	together may 	not 	be 	lower
than 	the 	fares 	that 	would 	result 	from 	unrestricted 	competition.
Preventing 	the 	market 	transfer 	of 	these 	licenses 	will
not 	eliminate 	monopoly 	profits, 	though 	it 	will 	make 	the
estimation 	of 	these 	profits 	more 	difficult. 	Market 	transfers 	of
licenses 	help 	ensure 	that 	licenses 	should 	go 	to 	the 	lowest-cost
providers. 	Prohibiting 	these 	transfers 	is 	likely 	to 	increase
~aste and may 	also 	serve 	to 	reduce 	service 	to 	consumers.
7

15
With 	open 	entry 	and 	unregulated 	fares, 	radio-dispatched 	taxicab
services 	would 	have 	an 	incentive 	to 	offer various 	fare 	and
quality 	combinations 	responsive 	to 	different 	groups 	of 	customers,
including 	senior 	citizens. 	Taxicab 	companies 	might 	also 	begin 	to
offer 	shared 	cabs 	or 	jitney cabs,l4 	with 	lower 	fares 	than
individual 	passenger 	cabs, 	to 	serve 	senior 	citizens'
transportation 	needs. 	Where 	both 	fares 	and 	entry 	are
administratively 	controlled, 	as 	in 	the 	proposed 	law, 	incentives
to 	develoE 	new 	transportation 	services 	are 	substantially
reduced. l
ConclusiQn
We 	recQmmend 	that 	MontgQmery 	County 	eliminate 	restrict~Qns
on 	fares 	and 	entry 	altogether 	by 	adopting 	Amendments 	Nos. 	1 	and
5. 	We 	believe 	that 	both 	lower 	fares 	and 	an 	increased
availability 	Qf 	taxicabs 	will 	result 	from 	deregulation.
Experience 	in 	Qther 	jurisdictions 	has 	shQwn 	that 	these 	benefits
follow 	from 	increased 	competition 	in 	the 	taxicab 	market. 	SQme
regulatiQns, 	carefully drawn 	to 	avoid 	restraining 	competition
needlessly, 	may 	be 	appropriate 	to 	ensure 	vehicle 	safety,
lieb~li~y insurance, 	and 	driver 	traini~g and 	knowledge. 	This
policy 	would 	help 	ensure 	safe, 	economical 	taxicab 	service 	to 	the
citizens 	of 	Montgomery 	CQunty.
We 	hope 	these 	comments 	will 	help 	you 	in your 	deliberations
and 	appreciate 	the 	opportunity 	to 	present 	our 	views.
S1:Z~ tJ 	&~I 	jc~
~effrey 	I. 	Zuckerman
O· -Director
Bureau 	Qf 	Competition
14 	Jitney 	cabs 	are 	shared 	cabs 	that 	operate 	along 	a 	semi-
fixed 	route. 	In 	some 	situations, 	jitneys 	may 	be 	mQre 	efficient
than 	either 	cQnventiQnal 	taxi 	Qr 	bus 	service.
If, 	after 	deregulatiQn, 	MQntgQmery 	CQunty 	wished 	to
reduce 	the 	cost 	Qf 	taxicab 	transportation 	even 	further 	to 	its
senior 	citizens, 	it 	might 	consider 	prQviding 	direct 	subsidies 	to
them. 	The 	city 	of 	San 	DiegQ, 	fQr 	example, 	has 	successfully
implemented 	such 	a 	program. 	In 	any 	case, 	all 	taxicab 	users 	in
Montgomery 	County, 	not 	only 	the 	elderly, 	would 	benefit 	from 	the
lQwer 	fares 	that 	deregulatiQn 	WQuld 	generate.
8