Airport Taxi Monopoly Takes Passengers for a Ride

Aggressive taxi drivers
Aggressive behavior on the part of taxi drivers led the Kalamazoo County commission to award a service monopoly to Action Limousine. But previous government policies, not competition, may be the real problem.

Today, most of us take for granted the dramatically lower prices and improved efficiency that airline deregulation has delivered to travelers during the past 22 years. Indeed, younger air travelers, who have no experience of a regulated marketplace, probably cannot imagine that the Federal Aviation Administration once fixed the rates for air travel in the United States.

But the benefits of competitive markets in the airline industry are flying over the heads of members of the Kalamazoo County Commission, who recently voted to establish a monopoly in the ground transportation market at Kalamazoo/Battle Creek International Airport. In February, a Battle Creek firm called Action Limousine was granted a license to serve as the airport's exclusive taxi service. Action's taxi privilege lasts for one year, with the commission having the option to renew Action's license for up to two one-year extensions. As part of the deal, Action is required to post its rates at the airport, and any rate changes must be approved by the commission. The commission does not set or change rates.

Will a taxi monopoly benefit consumers? Not if we define "benefit" as lower prices for better service, which has normally been the result of competition between service providers. This is one reason why competitive bidding for government services has become popular with public officials looking to improve quality while controlling costs.

Monopoly service providers, on the other hand, typically deliver higher prices, offer lower quality services, and are unresponsive to customer wishes. This is so for the simple reason that they can get away with it. Monopoly providers operate with the knowledge that no competitor is going to outflank them in the marketplace for providing poor service to their clientele.

Why did the Kalamazoo County Commission establish a taxi monopoly? According to the airport director, competition between taxis was creating a public nuisance at the airport. The county commissioners were told that drivers were using abusive language, driving filthy cabs, getting into fistfights, and overcharging customers on some routes. As a solution, the commission decided to give Action Limousine the right to serve deplaning passengers first. Customers would be free to call other cab companies, but these companies would not be allowed to station vehicles outside the terminal to respond to requests for service.

Have cab drivers become so maniacal that they must not be allowed to compete with each other for business, or is there more to the story? As it turns out, there is. Drivers were squaring off against each other because of a policy requiring all taxis and limos to queue up while waiting for potential customers, instead of parking in the drop-off zone, next to the terminal. When business got slow, some of the more entrepreneurially minded drivers would get out of their cars and enter the terminal on foot to solicit business. This resulted in the cab drivers arguing over passengers.

The solution, however, is not to do away with competition altogether. Customers are usually willing to put up with drivers' jockeying for position in front of a terminal if it means a competitive cab fare. Instead, in Kalamazoo they will be greeted by one cab company, able to charge whatever it figures it can get away with. Meanwhile, the commissioners will collect a handsome sum from Action Limousine for the privilege.

A better solution would be to prohibit cab drivers from soliciting business outside their cabs, or to eliminate altogether the requirement that all taxis and limousines queue up for customers. This
would eliminate or minimize arguments among drivers while allowing customers to enjoy the benefits of competitive prices.

Unfortunately, when it comes to fixing problems, governmental bodies too often compound policy errors with more policy errors. Those most affected by the Kalamazoo County Commission's new taxi policy—the cab drivers and airline passengers—were never polled to see what they thought should be done or even whether they felt there was a problem. Instead, taxi companies must accept the policy and its economic consequences, and travelers must discover their taxi choices have been eliminated, without consultation or discussion.

It is not unreasonable for citizens to expect their duly elected representatives on the Kalamazoo County Commission to come up with solutions that are in the public's best interest. Competition among service providers is such a solution.

Donald L. Alexander is an associate professor of economics at Western Michigan University and an adjunct scholar with the Mackinac Center for Public Policy.