FTC Staff Comment Before the Colorado Public Utilities Commission Concerning the Application of Union Taxi Cooperative for Permanent Authority to Operate a Taxi Service

Under §1504(b) “The Commission may accept comments from the public1
concerning any proceeding, which shall be included in the record.” 4 C.C.R. 723-1 § 1504(b).
Docket No. 08A-241CP.2
Federal Trade Commission Act, 15 U.S.C. § 45.3
1
UN ITED STATES OF AM ERICA
FEDERAL TRADE COMMISSION
W ASH IN GTO N , D .C. 20580
O ffice of Policy Planning
Bureau of Com petition
Bureau of Econom ics
November 3, 2008
The Honorable G. Harris Adams
Colorado Public Utilities Commission
1560 Broadway Suite 250
Denver, CO 80202
Re: Docket No. 08A-241CP
Dear Judge Adams,
We are pleased to submit these comments for your consideration in Docket No. 08A-
241CP, pursuant to the Colorado Department of Regulatory Agencies Public Utilities
Commission Rules of Practice and Procedure § 1504(b). Specifically, we submit these1
comments in regard to the Application of Union Taxi Cooperative for Permanent Authority to
Operate a Taxi Service to the extent that you are called upon to consider how new entry into the
Denver taxicab market is likely to affect the public interest. It is our understanding that if an2
applicant demonstrates its operational and financial fitness in such a proceeding, entry can then
be denied only if an objecting party affirmatively proves that granting the application is not
needed and also would be detrimental to the public interest. Based on the available empirical
evidence and our experience in this area, we conclude that new entry is highly unlikely to harm
the public interest and, in fact, may generate benefits for consumers.
I. Interest and Experience of the Federal Trade Commission
The FTC enforces laws prohibiting unfair methods of competition and unfair and
deceptive acts or practices in or affecting commerce. The Commission has wide-ranging3
responsibilities concerning nearly all segments of the economy. Pursuant to this responsibility,
the Commission seeks to identify business practices and regulations that impede competition

Specific statutory authority for the FTC’s competition advocacy program is found4
in Sections 6(a) and (f) of the FTC Act, under which Congress authorized the FTC “[t]o gather
and compile information concerning, and to investigate from time to time the organization,
business, conduct, practices, and management of any person, partnership, or corporation engaged
in or whose business affects commerce,” and “[t]o make public from time to time such portions
of the information obtained by it hereunder as are in the public interest. . . . ” 15 U.S.C. § 46(a),
(f).
E.g., FTC Staff Comments to the Hon. Geanne Faatz Concerning Colorado H.B.5
1165 to Reform the Regulation of Taxicab Service (Feb. 7, 1985).
The FTC sued the cities of New Orleans and Minneapolis in 1984, charging both6
cities with unfair competition by combining with taxicab operators to impose regulations that
limited the number of taxicab licenses, increased fares, and eliminated competition in violation
of the federal antitrust laws. The complaint against Minneapolis was withdrawn after the city
revised its ordinance to permit more competition. The complaint against New Orleans also was
withdrawn after the state authorized the conduct in question by a new law. See generally FTC,
1985 ANNUAL REPORT 5 (1985), available at http://www.ftc.gov/os/annualreports/ar1985.pdf.
MARK W. FRANKENA & PAUL A. PAUTLER, AN ECONOMIC ANALYSIS OF
7
TAXICAB REGULATION (1984) (FTC Bureau of Economics Staff Report), available at
http://www.ftc.gov/be/econrpt/233832.pdf (“Staff Report”).
OECD, Directorate for Financial and Enterprise Affairs, Competition Committee8
Working Party No. 2 on Competition and Regulation, Taxi Services and Competition – United
States 2 (Oct. 15, 2007), available at http://www.ftc.gov/bc/international/docs/ustaxis.pdf (“As
of 2007, the general description of the taxicab industry and taxicab regulation in the United
States remains much as it was when Frankena and Pautler described it in 1984. That is, nothing
dramatic has happened to alter the U.S. industry in the interim.”).
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without offering countervailing benefits to consumers. In carrying out this mission, the4
Commission has developed considerable expertise in analyzing issues related to competition in
markets for taxicab services. FTC staff have submitted numerous advocacy filings related to
taxicabs with various local and state authorities. The Commission also has brought enforcement5
actions against two cities relating to taxicab regulation. Another major contribution in this area6
is an FTC staff report on taxicab regulation. Based on careful study of regulatory systems in7
cities throughout the country, staff found, among other things, that there is no persuasive
economic rationale for restricting the number of taxicabs that may serve consumers in a given
area. The report’s conclusions are still generally applicable today.8
II. Application of Union Taxi Cooperative for Permanent Authority to Operate
a Taxi Service
It is our understanding that Union Taxi Cooperative has submitted an application to the
Colorado Public Utilities Commission (“CPUC”) for permanent authority to transport passengers
and their baggage in taxicab service. According to Union Taxi’s application, it seeks permanent

Application of Union Taxi Cooperative 1 (Docket No. 08A-241CP).9
Id. at 2.10
H.B. 08-1227, 66 Gen. Assemb. (Colo. 2008).11 th
C.R.S. § 40-10-105(2)(b)(II)(A).12
Id. at § 40-10-105(2)(b)(II)(B).13
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authority from the CPUC to operate as a taxicab carrier service between all points within a
twenty (20) mile radius of 16 and Champa Streets in Denver, Colorado and from said points, onth
the one hand to all points in the State of Colorado, on the other hand. This proposed geographic
area includes Denver International Airport, among other areas. According to the application, it9
is restricted as follows: (1) to the use of vehicles with a seating capacity of seven (7) passengers
or less, not including the driver and (2) to the use of a maximum of two-hundred sixty-two (262)
cabs.10
It is also our understanding that Colorado House Bill 08-1227 became effective on July
1, 2008 and, thus, amended Colorado Revised Statutes § 40-10-105, concerning rules for
issuance of certificates of public convenience and necessity to a motor vehicle carrier. Under11
the amended statute, it appears that a two-step inquiry is to be applied in this case. First, “The
applicant shall have the initial burden of proving that it is operationally and financially fit to
provide the proposed service. The applicant shall not be required to prove the inadequacy of
existing taxicab service, if any, within the applicant’s proposed geographic area of operation.”12
Second, “If the applicant sustains its initial burden of proof . . . there shall be a rebuttable
presumption of public need for the service, and the party or parties opposing the application shall
bear the burden to prove that the public convenience and necessity does not require granting the
application and that the issuance of the certificate would be detrimental to the public interest.”13
This letter does not address the merits of the application before the CPUC under the first
step of this inquiry. Rather, in the event that Union Taxi Cooperative sustains its initial burden
of proof and another party challenges the resulting rebuttable presumption of public need for its
service under the second step, these comments are intended to aid the CPUC to the extent that it
must consider the public interest factors specified therein. It is our understanding that if an
applicant demonstrates its operational and financial fitness in such a proceeding, entry can then
be denied only if an objecting party affirmatively proves that granting the application is not
needed and also would be detrimental to the public interest. Based on the available empirical
evidence and our experience in this area, we conclude that new entry is highly unlikely to harm
the public interest because it is unlikely to harm consumers or competition and may generate
benefits for consumers.
III. New Entry into Taxi Service is Unlikely to Harm Consumers or Competition
and May Generate Consumer Benefits
Economic theory suggests that consumers of taxicab services, like all consumers, benefit

See, e.g., Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 689 (1978);14
Goldfarb v. Virginia State Bar, 421 U.S. 773, 787 (1975); see also United States v. Am. Bar
Ass’n, 934 F. Supp. 435 (D.D.C. 1996), modified, 135 F. Supp. 2d 28 (D.D.C. 2001).
Prof’l Eng’rs, U.S. at 695 (emphasis added); accord, FTC v. Superior Court Trial15
Lawyers Ass’n, 493 U.S. 411, 423 (1990).
See generally Staff Report, supra note 7, at 112-56; OECD, supra note 8, at 4-7.16
See generally Staff Report, supra note 7, at 115-16, 156; OECD, supra note 8, at17
4-7. Price declines of as much as 20% were reported in the 1990s in major New Zealand cities
due to the deregulation of entry. Id. at 6 n.20. Indianapolis, Indiana deregulated taxicabs in
1994 and allowed jitney (transportation services for individuals along a semi-fixed route) and
minivan operation. According to the city, new entrants cut fares by 7-10%. Others have
questioned the overall, long-term effect of the Indianapolis deregulation, however. Id. at 5.
Seattle, Washington opened entry and allowed fares to be set by individual taxicab firms in
1979. One study found that immediately after regulation, the fare for an average trip increased
by 35%. Using a longer time frame, another study found that by 1984 these changes may have
led to a 5% net reduction in fares, as radio-dispatch fares fell and taxicab stand fares rose.
Another study found no net change in fares. Staff Report, supra note 7, at 125-31; OECD, supra
note 8, at 4-5 (both summarizing the experience of Seattle after deregulation). Other studies
have questioned whether regulated fares were, in fact, held artificially low prior to deregulation,
as compared to general rates of price inflation. Craig Leisy, Taxicab Deregulation and
Reregulation in Seattle: Lessons Learned 5 (2001).
It is our understanding that in Colorado retail rates charged by taxicab drivers are
(continued...)
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from competition. As the United States Supreme Court has stated:14
The assumption that competition is the best method of allocating resources in a
free market recognizes that all elements of a bargain – quality, service, safety,
and durability – and not just the immediate cost, are favorably affected by the
free opportunity to select among different alternative offers.15
In general, sound competition policy calls for competition to be restricted only when necessary
to protect the public from significant demonstrated harm, and for the restriction to be narrowly
drawn to minimize its anticompetitive impact. Thus, an inquiry into the public interest involves
an assessment of the effects of new entry on consumers and competition and whether there are
likely to be any significant countervailing impacts.
Studies show that deregulation of taxicab markets has not led to significant harm to
consumers or competition and, in some instances, has generated consumer benefits. For16
example, studies suggest that open entry into taxicab service generally does not cause price
increases and may lead to price reductions or other discounts for consumers where price
competition is allowed. Similarly, new entry does not appear to diminish service.17

(...continued)17
generally set through a tariff application filed by a taxicab operator and approved by the CPUC,
and that these rates may change from time to time, subject to the approval of the CPUC. 4
C.C.R. 723-6 § 6207. However, a flat-rate schedule for service to and from Denver International
Airport, on the one hand, and the Downtown Denver area, the Denver Tech Center, and the City
of Boulder, on the other hand, is established by 4 C.C.R. 723-6 § 6256.
Staff Report, supra note 7, at 116-20, 156. See also generally Office of Fair18
Trading, The Regulation of Licensed Taxi and PHV Services in the UK (2003), available at
http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft676.pdf. The report finds, among
other things, that quantity controls on taxicab service result in: fewer taxis per capita; longer wait
times for service; and the use of less suitable alternative transportation by consumers. Therefore,
the report recommends that such quantity controls be removed. Id. at 2-6, 23-44.
See generally Staff Report, supra note 7, at 102-03.19
Typically, the operator of a taxicab service, as an overall business, is distinct from20
an individual taxicab driver (“cabbie”) who physically transports passengers via automobile.
Compare Application of Union Taxi Cooperative, supra note 9, at 6-7 (describing a cooperative
owner-driver business plan).
Staff Report, supra note 7, at 68, 74-79, 105-11.21
Id. at 106-07 (collecting taxicab license values in various cities); OECD,22
supra note 8, at 10-12 (appendix collecting taxicab license values in various cities).
Certain authors, however, have argued that these substantial license values serve23
as a deterrent mechanism that ensures good behavior by cab drivers who fear the loss of the
license in the event of inappropriate behavior. Staff Report, supra note 7, at 71-72; OECD,
supra note 8, at 3.
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Furthermore, some cities have reported that service has improved, for example, through
reductions in vehicle age, increases in fleet maintenance, reductions in waiting times for radio
dispatched cabs, and increases in hours of service. Certain consumer populations, such as the18
poor, who generally spend a larger portion of their income on taxicab rides than do other
segments of the population would be expected to benefit the most from such prospective
benefits.19
The principal beneficiaries of entry restrictions on taxicab service are incumbent taxicab
operators. Incumbent operators in many instances have a strong incentive to try to restrict20
entry to maintain artificially high prices and profits. Indeed, studies indicate the value of21
licenses to operate taxicabs in various cities to be substantial. In a market open to free entry,22
however, the value of such licenses would be zero. The fact that such licenses are valued at a
premium is evidence that prices are higher and the number of trips lower than would be the case
in an effectively operating freely competitive market.23

Staff Report, supra note 7, at 1, 50-51, 123-24, 156; OECD, supra note 8, at 2;24
Leisy, supra note 17, at 6. It appears in some cases that first-in first-out taxicab queues have
inhibited price competition, that drivers sometimes bickered over their places in line as queues of
waiting cabs lengthened, and drivers also sometimes refused service to passengers wanting only
a short trip.
Staff Report, supra note 7, at 1, 50-51, 123-24, 156; OECD, supra note 8, at 6-7.25
Staff Report, supra note 7, at 38-43, 121. Concerns about congestion may be26
more real in very dense urban areas such as Manhattan, New York or Singapore. However, even
in such areas, broad entry restraints may not necessarily be the best approach to solving
congestion problems. Rather, pricing mechanisms for entry into the congested area may be more
efficient.
6
Special issues have sometimes arisen following regulatory reform, however, as in the
case of first-in first-out taxicab lines at airport, rail station, or downtown taxicab stand areas.
Such queues may complicate consumer efforts to find the lowest fares. But these problems do24
not provide an argument that new entry will harm consumers or competition, generally. Instead,
consumers appear to be better off when regulators pursue alternatives for such locations that are
less restrictive than wholesale bans on new entry, such as: redesigning taxicab stands, increasing
fare transparency and fare competition, imposing lower fare ceilings, increasing taxicab line user
fees, or entering into contracts with operators.25
There seems to be little reason to expect that unnecessary empty cabs might clog the
applicant’s covered area if they are permitted to enter. Economic theory suggests that, generally,
there will be more cabs only if people actually want to ride in them. Also, taxicabs can
potentially reduce traffic congestion, because more cabs can mean fewer private automobiles,
especially in downtown and other dense areas. There is no sound economic reason why the
number of taxicabs on the street should be limited in a manner different from private cars,
trucks, or other commercial vehicles. Limiting taxicab entry does not serve the purpose of
minimizing congestion.26
IV. Conclusion
Economic theory suggests that consumers of taxicab services, like all consumers, benefit
from competition. In general, sound competition policy calls for competition to be restricted
only when necessary to protect the public from significant demonstrated harm, and for the
restriction to be narrowly drawn to minimize its anticompetitive impact. Thus, an inquiry into
the public interest involves an assessment of the effects of new entry on consumers and
competition and whether there are likely to be any significant countervailing impacts.
To the extent you are called upon to consider how new entry into the Denver taxicab
market is likely to affect the public interest, we conclude that new entry is highly unlikely to
harm the public interest because it is unlikely to harm consumers or competition and may
generate benefits for consumers. Although narrow regulation may help reduce certain adverse
effects from entry in some special circumstances, such as airport taxicab stands, these problems

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do not provide an argument that new entry will harm consumers or competition, generally. We
hope you will find these comments useful. FTC staff is pleased to have this opportunity to
express these views and would be happy to address any questions you may have regarding
competition policy in this area.
Respectfully submitted,
Maureen K. Ohlhausen, Director
Office of Policy Planning
David P. Wales, Acting Director
Bureau of Competition
Michael R. Baye, Director
Bureau of Economics