Random thoughts of an economist

Understanding the apparent conflict between the taxi drivers and taxi operating license owners

Posted in Economics, Hong Kong, Regulation, Taxi industry by kafuwong on May 24, 2012

“The landlord of a local shopping arcade wanted its tenants to raise their sale price by 5%.  The tenants refused.”  No.  This is not a true story. 

Something similar did happen though.  Recently, in Hong Kong, the taxi operating license owners wanted to see a HK$2 rise in flagfall (Flagfall is the charge for the initial fixed distance travelled by taxis.  Beyond that, the fare will increase with additional distance travelled.  Flagfall signifies the turning down of a  lever to start the fare metre.).  The taxi renters/drivers opposed the rise. 

In the case of a shopping arcade, landlords cannot force its tenants to raise their sale prices by 5%.   In the case of taxi, it is possible because taxi fare is regulated by the government.  The taxi operating licence owners can lobby the government to raise the taxi fare and hence impose it on the taxi renters/drivers.  The owners would get what they wanted if the taxi drivers could not get organized to oppose it. 

 According to  South China Morning Post (“Taxi driver leaders oppose fares rise”, May 24, 2012, page C3), the proposed flagfall rise by the Transport and Housing Bureau was meant to compensate the higher operating costs of taxis (also see the report by Hong Kong Standard, available online http://www.thestandard.com.hk/news_detail.asp?sid=36466396&art_id=122657&con_type=1&pp_cat=30).  The taxi drivers are smart people.  Their experience tells them that the rise in flagfall only benefits the taxi operating license owners.  Why?

In Hong Kong, there is an abundant supply of taxi drivers.  One can qualify to drive a taxi if one has certain years of driving experience and passes a written test (multiple choices).  Of course, he/she will need to rent a taxi, or more precisely a taxi operating license.   When driving taxis earn more than the best alternative jobs available in the economy, we expect to see more people becoming taxi drivers.  These potential taxi drivers will have to compete for the taxi rental (or taxi operating licence rental).  The competition will ensure the taxi rental to rise.  So would the price of taxi operating license (which can be thought as a discounted stream of rental income)!  That is, the change in profit of operating a taxi will eventually turn into the change in taxi rental.  Thus, the taxi owners will benefit from an increase in profit of operating taxis.  At the end, the taxi drivers do not get any benefit if the increase in profit is converted into rental completely.  The percentage of conversion depends on the bargaining power of the two groups — individual taxi drivers/renters and taxi owners (concentrated in a few companies).  Due to the abundant supply of taxi drivers/renters, the bargaining power of taxi drivers/renters is weak. 

A visible fare hike will cause an expectation of higher profit of operating taxi and thus will justify an increase in taxi rental almost immediately.  And, taxi rental appears rigid downwards.  Thus, the fare hike benefits the taxi owners but not the taxi drivers. 

Now, consider the similar case of shopping arcade.  Suppose there is a bigger demand for goods and services offered by the shops (tenants of the shopping arcade), say due to the increase of tourists from mainland China.  The price of goods and services will rise.  Shops will be earning more profit.  Can the shops continue to enjoy the profit for very long?  Who are the winners eventually?

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Someone deserves an applaud!

Posted in Hong Kong, Information, Taxi industry, Uncategorized by kafuwong on August 23, 2011

When I returned to HK after my summer trip, I took taxi home from the airport.  I was directed to a taxi among the line of taxi by a helper.  I was also handed a flyer and a card.  The flyer (in English, traditional Chinese and simplified Chinese) contains information of the taxi fare structure and approximate fare from the airport to various locations in the Territory.  The card contains several important phone numbers, such as that of the Transport Complaints Unit and that of the Road Co-op Lost and Found.  The taxi’s license plate  number is also included in the card. 

This information helps discipline the taxi drivers from overcharging the passengers and honestly returning the lost items for the passengers. 

I can imagine the following three parties might have been behind the introduction of such good deed: the Transport Department, the Hong Kong International Airport, and the Tourist Association. 

Although I live in Hong Kong, I find the information useful.  I am sure tourists will find it very useful.

Thank you!

[The taxi fare structure and approximate fare from the airport to various locations in the Territory]

Taxi drivers are not fools

Posted in Hong Kong, Taxi industry, Uncategorized by kafuwong on April 17, 2010

According to South China Morning Post (Friday, April 16, 2010), a taxi owner group member claimed that most taxi drivers supported an increase in the flag-fall price from HK$18 to HK$20 in Hong Kong.   Who ultimately benefits from such increase in the flag-fall price?  Why was such proposal initiated by a taxi owner group instead of  a taxi driver group?

Indeed, a taxi driver group (the Urban Taxi Drivers Association Joint Committee) opposed such increase because they believed that the increase in the flag-fall price would likely lead to an increase in taxi rent, not their income.  Taxi drivers are not fools!