FTC Staff Comment Before the Theodore Francis Green State Airport Concerning the Authorization of Additional Taxi Service

RooM 1164
toc.-av61_
So&Ion. M__0t222-1073
(611) MS-7240
· '.,--
UNITED STATEb Of AMERICA
FEDERAL TRADE COMMISSION
BOSTON REGIONAL OFFICE
COMMISSION AUTHORIZED
V880034
July 	15, 	1988
Mr. 	Alfred 	Testa, 	Jr. 	Esquire
Legal 	counsel
Department 	of 	Transportation
Division 	of Airports
Theodore 	Francis 	Green 	state 	Airport
warwick, 	Rhode 	Island 	02886
Dear Mr. 	Testa:
J
I
The 	staff 	of 	the 	Federal 	Trade 	Commission 	is 	pl~ased to
respond 	to 	your 	invitation 	for 	comments 	concerning 	the
advisability 	of 	authorizing 	additional 	taxicab 	service 	at
Theodore 	Francis 	Green 	state Airport. l 	We 	understand 	that 	the
total 	number of 	airline 	passengers 	at Green 	Airport 	has 	increased
dramatically, 	from 	737,000 	in 	19B2 	to more 	than 	2 million
passengers 	in 	19B7. 	To 	accommodate 	this 	increase 	in 	passengers,
the 	Rhode 	Island 	Department 	of 	Transportation 	("RlDOT") 	is
currently 	formulating 	plans 	for 	significantly 	expanding 	airport
facilities. 	concurrent 	~ith this 	expansion, 	RIDOT 	propose8 	to
increase 	the 	level 	of 	taxicab 	service 	at 	the 	airport, 	which 	is
presently 	serviced by 	a 	single 	taxicab 	company 	pursuant 	to 	a
concession 	agreement.
Permitting 	open 	entry 	into 	the 	airport 	market 	and 	allowing
fares 	to 	fluctuate 	under 	a 	reasonable 	ceiling 	would 	likely
benefit 	Rhode 	Island 	residents 	and 	visitors 	in two 	ways. 	First,
limited derequlation 	of 	fares 	and 	open 	entry would 	introduce
oompetition 	and 	likely 	lead 	to 	lower 	fares. 	We 	believe 	that 	even
this 	limited 	fare 	competition may 	save 	consumers 	of 	airport
taxicab 	services 	about 	$200,000 	annually. 	Second, 	increasing 	the
nrt~ber of 	taxicabs 	servicing 	the 	airport 	should 	reduce 	the 	time
that 	consumers wait 	for 	taxicabs.
1 	These 	comments 	are 	the 	views 	of 	the 	staff 	of 	the 	Boston
Regional 	Office 	and 	of 	the 	Bureaus 	of 	Competition, 	Consumer
Protection, 	and 	Economics 	of 	the 	Federal 	Trade 	commission. 	They
are 	not 	necessarily 	the views 	of 	the 	Commission 	or 	any
individual 	Commissioner.

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The 	Federal 	Trade 	Commission's 	Experience
With 	Taxicab Regulation
The 	staff 	of 	the 	Federal 	'I'rade 	commission, 	upon 	request 	by
federal, 	state, 	and 	local 	governmental 	bodies, 	regularly 	analyzes
regulatory 	proposals 	to 	identify 	provisions 	that 	may 	impede
competition 	or 	increase 	costs 	without 	providing 	countervailing
benefits 	to 	consumers. 	Comments 	on 	taxicab 	regulation 	have 	been
submitted 	to 	the 	city governments 	of 	New 	York, 	seattle, 	san
Francisco, 	Cambridge 	(Massachusetts), 	and 	the 	District 	of 	•
Columbia, 	and 	to 	the 	Alaska 	and 	Colorado 	state 	legislatures.
/
Commission 	economists 	have 	analyzed 	taxicab 	regulati6n 	in
numerous 	cities 	throughout 	the 	country 	and 	concluded 	that
restrictions 	on 	the 	number 	of 	taxicabs, 	prohibitions 	on 	fare
competition, 	and 	restrictions 	on 	shared 	ride, 	or 	"jitney"
service, 	harm 	consumers 	by 	imposing 	substantial 	costs. 2 	In
partiCUlar, 	the 	authors 	found 	that 	these 	restrictions 	impose 	a
disproportionate 	burden 	on 	low-income 	customers, 	including 	the
elderly 	and 	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.
A 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 	consumers 	nearly 	$800 	million 	annually 	in 	higher
fares, 	and 	resulted 	in 	38,000 	fewer 	jObS 	nationwide 	in 	the 	taxi
industry.)
While 	these 	figures 	are 	significant 	on 	a 	nationwide 	basis,
they 	are 	an 	aggregate 	of 	the 	many 	local 	areas 	that 	bear 	the 	costs
of 	taxicab 	regulation. 	In 	Cambridge, 	Massachusetts, 	for 	example,
we 	recently estimated 	consumer 	injury due 	to 	taxicab 	regulation
to 	be 	$1.5 	million 	annually.4
2 	M. 	Frankena 	and 	P. 	Pautler, 	An 	Economic Analysis 	of
T.~icab Regulation 	(FTC 	Bureau 	of 	Economics 	1984 	Staff 	Report)
(hereinafter 	cited 	as 	"Taxicab 	Regulation").
3 	Urban Mass 	Transportation Administration, 	U.S.
Department 	of Transportation, 	Regulatory 	Impediments 	to 	private
Sector 	Urban 	Transit 	85 	(1984).
4 	Letter 	to James 	T. 	McDavitt, 	Chairman 	of 	cambridge
License 	Commission, 	from 	Ross 	D. 	Petty, 	FTC 	attorney 	(July 	30, 	1987).
2

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An 	analysis 	of 	the 	effects 	of 	deregulation 	of 	taxicabs 	at
airports 	is 	included 	in 	the 	1984 	FTC 	staff 	economists' 	report.
Prior 	to 	that 	report, 	in 	1977, 	the 	FTC 	sponsored 	a 	detailed 	study
by 	Professor Arthur 	De 	Vany 	of 	regulations 	governing 	taxicab
service 	at 	the 	Dallas/Fort 	Worth 	Regional 	Airport. 5 	Each 	of
these 	reports 	recognizes 	that 	distinctions 	must 	be 	drawn 	between
metropolitan 	and 	airport 	taxicab 	markets 	and 	that 	total
daregulation 	at 	airports 	may 	not 	always 	be 	feasible. 	Each 	report
concludes, 	however, 	that 	partial 	deregulation 	of 	taxicabs 	at
airports 	can 	provide 	the 	same 	beneficial 	effects 	that 	flow 	from
the 	deregulation 	of 	taxicabs 	in 	other 	areas.
Airports 	in 	Seattle 	and 	San 	Diego 	encountered 	difficulties
that 	can 	accompany 	total 	deregulation 	of 	taxicabs 	at 	airpdtts. 6
For 	example, 	the 	airport 	in 	Seattle 	experienced 	a 	lengthening 	of
cab 	lines, 	significant 	fare 	variance, 	disputes 	among 	taxicab
drivers, 	and 	refusals 	by 	drivers 	to 	provide 	short-haul 	service
for 	customers. 	Professor Richard 	O. 	Zerbe 	suggests 	that 	these
problems 	stem 	from 	one 	fundamental 	cause--taxis 	are 	able 	to
charge 	high 	fares 	because 	customers 	are 	not 	able 	to 	shop
efficiently 	for 	the 	lowest 	fare.? 	Consequently, 	cab 	queues
lengthen 	as 	drivers 	attempt 	to 	reap 	fare 	premiums. S 	These
5 	A. 	De Vany, 	Alternative Ground 	Transportation Systems
for 	Dallas/Fort Worth 	Regional 	Airport 	(1977).
6 	Airport 	taxicabs 	typically 	form 	a 	single 	queue, 	making
it 	difficult 	for 	consumers 	to 	consider 	several 	taxicabs 	before
selecting 	the 	one 	they 	prefer. 	In 	contrast, 	taxicab 	users 	in
most 	cities 	can 	easily 	sample 	a 	number 	of 	taxicabs 	by 	calling 	the
dispatch 	services 	of 	various 	companies 	until 	they 	ultimately
select 	a 	taxicab 	company 	for 	use 	on 	a 	regular 	basis. 	In 	such 	a
radio-dispatch market, 	taxicab 	companies 	can 	develop 	reputations
for 	price 	and 	service, 	allowing 	competition 	to work 	to 	the
benefit 	of 	consumers.
7 	R. 	Zerbe, 	Seattle Taxis; 	Deregulation Hits 	a 	Pothole,
Regulation, 	Nov.-Dec. 	1983, 	at 	48.
• 	8 	These 	problems 	appear 	to 	have 	been 	exacerbated by
Saattle's 	retention 	of 	the 	dispatching 	system 	it had 	prior 	to
deregUlation, 	when 	fares 	were 	uniform. 	Taxicabs were 	called 	into
the 	loading 	area 	according 	to 	their 	place 	in 	line. 	If 	the
taxicab was 	refused 	by 	a 	customer, 	the 	taxicab 	did 	not 	go 	to 	the
end 	of 	the 	line, 	but went 	to 	a 	holding 	area 	and 	soon 	returned 	to
the 	head 	of 	the 	line.
3

problems 	spawned a 	rash of 	consumer complaints. 	Seattle
authorities 	responded by putting a 	ce~ling on 	the 	fares 	that
could be charged by airport 	taxicabs, 	by providing 	for 	rate-
posting, 	and 	by creating a 	separate queue 	for 	short-haul 	trips.IO
These measures 	resulted 	in 	an 	increase of 	taxicab competition 	and
fewer 	consumer complaints.
The 	airport 	in San Diego experienced 	similar problems 	after
total 	deregulation. 	Consumers 	complained about 	high 	fares 	and
fare 	variance. 	There were 	long queues, 	short-haul 	refusals, 	and
disputes 	among cab drivers 	about 	their places 	in 	line. 	San 	Diego
substantially relieved 	these 	problems 	by 	imposing 	fare 	ceilings,
raising 	the 	permit 	fee, 	and 	hiring additional 	starters. ll
/
The Current 	System 	at Green 	State Airport
Green 	State Airport 	is 	presently serviced by a 	sole 	taxicab
company pursuant 	to 	a 	concession agreement. 	The 	concessionaire's
taxicabs, 	like 	all 	taxicabs 	in 	the 	State of 	Rhode 	Island, 	are
regulated 	by 	the 	Rhode 	Island Public 	Utilities 	Commission
(RIPUC).12 	Under existing regulations, 	a 	taxicab may 	solicit
fares 	only 	in 	the 	areas 	for 	which 	it 	holds 	operating authority.
9 	Lengthy cab queues 	may be 	shortened by reducing 	fare
ceilings, 	thereby making 	it 	less 	lucrative 	for 	taxicab drivers 	to
wait 	long periods 	of 	time 	for 	a 	passenger. 	The 	ceiling 	imposed
by Rhode 	Island's 	current method of 	rate 	regulation 	(the 	zone 	of
reasonableness 	discussed 	in 	the 	next 	section of 	the 	text) 	may be
low enough 	to 	constrain undue 	lengthening of 	taxicab queues 	at
Green State 	Airport. 	If 	not, 	RIDOT may wish 	to 	consider whether
it 	should petition RIPUC 	to 	establish a 	separate 	fare 	ceiling 	for
airport 	service.
10 	The New Orleans 	airport 	also 	has 	separate 	taxicab
queues 	for 	long 	and 	short 	trips.
11 	Taxicab Regulation, 	supra note 	3, 	at 	135-36. 	In view
of 	the planned expansion at Green State Airport, 	RIDOT may wish
to 	address 	such problems 	by providing consumers 	with 	the
opportunity to 	shop around by establishing a 	taxi 	dispatch 	system
th.t 	allows 	cabs 	to compete 	and consumers 	to choose among
different 	levels 	of 	taxicab 	fares 	and 	service.
12 	RIPUC 	and RIDOT 	are 	separate, 	unrelated
administrative agencies. 	RIDOT 	has 	no 	direct 	authority 	to
regulate 	taxicabs. 	It can do 	so only collaterally, 	as 	part 	of
its 	authority 	to manage 	the 	airport, 	which 	is 	private property.
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Typically, 	that 	authority 	is 	confined 	to 	the 	city 	or 	town 	in
which 	the 	taxicab 	is 	based. 	The 	requlations 	also 	provide 	that 	a
trip 	may 	not 	originate 	outside 	of 	a 	taxicab's 	base 	city unless
the 	trip 	is 	pre-arranged 	at 	the 	request 	of 	the 	passenger, 	~,
the 	passenger 	calls 	the 	taxicab 	company. 	Thus, 	while 	a 	taxicab
may 	transport 	a 	passenger 	from 	its 	base 	city 	to 	any 	point 	in 	the
state, 	including the Green 	state Airport, 	it must 	return 	empty,
or 	Itdeadhead," 	to 	its 	base 	city 	if 	it 	is 	not 	authorized 	to
solicit 	passengers 	at 	the 	airport. 	Similarly, 	an 	airport 	taxicab
taking 	a 	customer to 	a 	location 	other 	than 	the 	city 	of warwick,
where 	the 	airport 	is 	located, 	must deadhead back 	to 	the 	airport.
This 	deadheading back 	to 	the 	base 	city 	is 	inefficient 	and 	leads
to 	higher 	costs 	for 	taxicab 	service. IJ .J
J
All 	Rhode 	Island 	taxicab 	companies 	must 	disclose 	their 	rate
structure 	on 	tariffs 	that 	are 	filed 	with RlPUC. 	These 	rates 	must
be 	approved 	by RlPUC 	as 	just 	and 	reasonable. 	RIPUC has
established 	a 	zone 	of 	reasonableness within 	which 	fares 	will 	be
presumed 	just and 	reasonable. 	Taxicabs 	filing 	rates 	within 	this
zone 	need 	not 	explicitly 	justify their 	rates 	and 	no 	public
hearing 	on 	the 	validity 	of 	the 	rates 	is 	necessary. 	Presently,
the 	zone 	of 	reasonableness 	ranges 	from 	a 	minimum 	of 	$4.80 	to 	a
maximum 	of 	$9.00 	for 	a 	five-mile 	trip. 	The 	taxi 	concessionaire
at 	the 	airport 	charges 	$8.05 	for 	a 	five-mile 	trip. 	While 	this
zone 	of 	reasonableness 	may 	provide 	the 	flexibility 	for 	some 	price
competi~ion among 	taxicabs 	transporting 	passengers 	to 	the
airpor~, 	it 	obviously has 	no 	such 	beneficial 	effect 	on 	trips 	that
originate 	at 	the 	airport, 	where 	there 	is a 	single 	concessionaire
providing 	taxicab 	service.
From 	conversations 	with 	officials 	of RIDOT 	and 	RlPUC, 	we
understand 	that 	both 	agencies 	have 	received 	consumer 	complaints
about 	long 	waiting 	times 	during 	peak periods 	for 	taxicab 	service
at 	the 	airport. 	RIDOT 	also 	believes 	there 	is 	a 	perception among
airport 	patrons 	that 	taxicab 	service 	at 	the 	airport 	is 	not
adequate 	and 	that 	this 	causes many 	people 	to 	make 	prearrangements
for 	pick-up 	by 	private 	automobiles. 	RlDOT 	believes 	that
improvements 	in 	the 	taxicab 	system at 	the 	airport 	may 	result 	in
increased 	usage 	of 	taxicabs 	by 	consumers 	and 	reduced 	automobile
congestion.
13 	In 	his 	stUdy 	of 	the 	Dallas/Fort Worth 	Airport, 	De
Vany 	observed 	that 	the 	extra 	costs 	of 	deadheadin~ are 	usually
passed 	on 	to 	customers 	in 	the 	form 	of higher 	fares, 	surcharges,
longer waiting 	times 	and 	refusal 	of 	service.
De Vany, 	supra 	note 	6, 	at 	31-32.
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The 	Benefits 	of 	an 	Open 	Entry 	System at 	Green 	state Airport
The 	taxicab 	system 	at 	Green 	State 	Airport 	shares many 	common
features 	with 	the 	Dallas/Fort Worth 	Airport 	system 	studied 	by
De 	Vany 	in 	1977. 	These 	common 	characteristics 	inclUde 	the
operation 	of 	the 	taxicab 	system by 	a 	sole 	concessionaire, 	a
prohibition 	against 	other 	taxicabs 	picking 	up 	passengers 	at 	the
airport 	unless 	expressly 	requested 	to 	do 	so 	in 	advance 	by 	a
particular passenger, 	and 	a 	requirement 	that 	the 	concessionaire
provide a 	minimum 	number of 	taxicabs 	to 	service 	the 	airport. 	As
De 	Vany 	found, 	a 	system that 	employs 	a 	sole 	concessionaire 	is 	not
conducive 	to 	price 	competition 	or quality 	of 	service 	competition.
Consumers 	may 	be 	forced 	to 	pay 	higher 	fees 	than 	they would/under
an 	open 	entry 	system. 	When 	properly designed, 	an 	open 	entry
system 	has 	the 	potential 	to 	lower 	fares 	and 	to 	ameliorate 	other
problems, 	such 	as 	excessive waiting 	time. 	Open 	entry 	would 	also
eliminate 	or minimize 	the 	inefficient 	deadheading 	that 	now 	occurs
When, 	for 	example, 	a 	taxicab 	transports 	a 	passenger 	from
Providence 	to 	the 	airport 	and 	must 	then 	return 	empty 	to 	its 	base
city.14
RIDOT may 	wish 	to 	consider 	a 	system 	at 	Green 	state 	Airport
that 	would 	allow any 	taxicab 	licensed 	in Rhode 	Island 	to 	service
the 	airport. 	In 	his 	study 	of 	the 	Dallas/Fort 	Worth Airport,
De Vany 	found 	that 	an 	open 	system 	involved 	the 	elimination 	of
deadheading by permitting 	all 	taxicabs 	to 	pick 	up 	passengers 	both
at 	the 	airport 	and 	in 	the 	community 	to which 	they 	took 	the
passengers. l5 	Significantly, 	De 	Vany 	calculated 	that, 	as 	of
1977, 	the 	elimination 	of 	just 	one-half 	of 	the 	deadheading 	that
occurred 	at 	the 	Dallas/Fort Worth 	Airport 	would 	produce 	annual
savings 	in 	excess 	of 	$700,000. 16
The 	deregulation 	of 	taxicabs 	at Green 	state 	Airport 	can
yield 	benefits 	that 	are 	real 	and 	immediate. 	In 	addition 	to 	the
elimination 	of 	inefficient deadheading, 	deregulation 	would 	likely
benefit 	consumers 	by 	leading 	to 	lower 	fares 	and 	improved 	service.
The 	fares 	charged 	by 	the 	current 	concessionaire 	are 	higher 	than
•• 	14
15 	Most 	airports 	that 	have 	open 	systems, 	such 	as 	New 	York,
Chioago, 	Washington 	National, 	and 	Los 	Angeles 	allow 	all 	city
licensed 	cabs 	to 	serve 	the 	airport. 	De Vany, 	supra 	note 	6, 	at 	14.
16 	zg. 	at 	32.
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those 	of 	moat 	other 	Rhode 	Island 	taxicab 	companies. 	If 	open
entry 	led 	to 	a 	fare 	reduction 	to 	approximately 	that 	of 	the 	median
fare 	for 	the 	Providence/Cranston/Johnston 	area, 	airport 	taxicab
consumers would 	save 	over 	$500 	per 	day, 	or 	about 	$200,000 	per
year 	in 	fares 	alone. 1 ? 	We 	cannot 	estimate 	the 	dollar value 	of
other 	likely 	benefits 	such 	as 	reduced 	waiting 	time 	and 	reduced
traffic 	congestion. 	However, 	such 	benefits 	are 	likely 	both 	to be
significant 	and 	to 	increase 	the 	demand 	for 	airport 	taxicab
service, 	thereby 	increasing 	consumer 	benefits 	still 	further.
other 	locales 	that 	have 	dereQulated 	taxicab 	service 	ha~e
experienced 	comparable 	benefits. 	For 	example, 	after Seattle
deregulated 	taxicabs 	in 	1979, 	more 	than 	200 	new 	jobs 	for 	taxicab
drivers 	were 	created 	between 	1979 	and 	1983. 18 	In 	addition,
waiting 	times 	in 	Seattle 	decreased 	significantly, 	and 	no
municipality 	that 	has 	dereyulated 	taxicab 	entry has 	reported 	an
increase 	in 	waiting 	times. 	9 	Similarly, 	in 	San 	Diego, 	the
average 	waiting 	time 	in 	the 	radio-dispatched 	taxicab market
declined 	20 	percent 	after 	deregulation, 	and 	the 	average 	waiting
times 	at 	major 	taxicab 	stands 	became 	negligible. 20
18 	Zerbe, 	supra 	note 	8, 	at 	43-44. 	It 	is 	also 	estimated
that 	price 	regUlation 	in 	Seattle had 	inflated 	taxicab 	fares 	by
approximately 	11 	percent. 	~. 	at 	45.
17 	Based 	on 	fares 	listed 	in 	the 	report 	by 	Paratransit
Services, 	Taxicab 	Tariffs 	and 	Regulation 	in 	Rhode 	Island 	(1984),
the 	median 	Providence 	fare 	for 	a 	10-mile 	trip 	(for 	145 	of 	that
city's 	157 	authorized 	vehicles) 	was 	$10.85. 	The 	comparable
airport 	fare 	at 	that 	time 	was 	$14.80. 	RIDOT 	has 	told 	us 	that 	the
average 	length 	of 	taxicab 	trips 	originating 	from 	the 	airport 	is
10 	miles 	and 	that 	there 	are 	an 	average 	of 	150 	trips 	per day, 	and
that 	the 	taxi 	concessionaire 	must 	pay RlDOT 	$.30 	for 	each 	trip
that 	originates 	at 	the 	airport. 	Thus, 	a 	"competitive" 	fare 	of
$11.15 	might 	result, 	if 	the 	$.30 	charqe 	is 	added 	to 	the 	area-
wide 	average. 	Subtracting 	this 	fare 	from 	the 	comparable 	airport
fare 	yields 	an 	overoharge 	of 	$3.65 	per 	10-mile trip. 	This 	$3.65
overcharge 	on 	150 daily 	trips, 	365 	days 	per year, 	reSUlts 	in 	an
estimated 	loss 	to consumers 	of 	$199,931.50 	per 	year. 	This
calculation assumes 	that 	the 	typical 	airport-originated 	trip 	is
no 	more 	costly 	to 	provide 	than 	the 	typical 	area-wide 	taxicab
trip •
••
19 	~.
20 	TAxicab Regulation, 	supra 	note 	3, 	at 	117.
7

07/14/1988 	09:57
Conclusion
F'TC BOSmt~ 	61'? 7236344 06E,020'::J3 	F' . C)9
RIDOT may 	wish 	to 	petition RIPUC 	to 	sanction 	the 	adoption 	of
an 	open 	entry 	system 	at Green 	state Airport 	that 	would 	allow any
taxicab 	in 	the 	State 	of 	Rhode 	Island 	to 	service 	the 	airport.
Properly 	instituted, 	such 	a 	system 	can 	both 	lower 	fares 	and
increase 	the 	availability 	of 	taxicabs 	at 	the 	airport 	by
eliminating 	wasteful 	deadheading 	and 	by 	introducing 	other
efficiencies. 	Experience 	has 	shown 	that 	similar 	systems 	at 	other
airports 	have 	produced 	these 	benefits 	by 	increasing 	competition
in 	the 	taxicab 	market. 	Adoption 	of 	such 	a 	system 	is 	likely.to
provide 	tangible 	benefits 	to 	taxicab 	patrons 	at 	Green 	state
Airport 	and 	to 	the 	citizens 	of Rhode 	Island. 	I
I
We 	hope 	these 	comments 	will 	assist 	you 	in 	your deliberations
and 	we 	appreciate 	the 	opportunity 	to 	present 	our views.
Sincerely,
~]) 	M"KPhoebe 	D. 	Morse
Regional 	Oirector
Boston 	Regional 	Office
(
(
8