Douwe Osinga's Blog: Taxis

Tuesday, January 30, 2007

To the carless traveler taxis are a distinct mixed blessing. They are often the only practical way to arrived at a destination especially when one isn't comfortable yet with the local geography and public transport. The drawback is of course that taxis are often expensive or their drivers untrustworthy or both.

A lack of dynamic supply keeps prices up in more regulated countries as does a badly working market. As for untrustworthiness, I read somewhere that this is just typical for this sort of market, where buyer and seller usually won't meet again after the transaction and where there is a distinct asymetry in information. The taxi driver knows the city, knows where you are and you don't. I was wondering to what extend universal GPS and routeplanners could change this. Armed with a GPS enabled cell phone our traveler  would know exactly how far his hotel is from the airport and also what the best way to drive there is.

So GPS could fix the information assymetry and untrustworthiness, but I think it could fix the supply and market thing too. If every cab had a GPS/routeplanner on board, it would no longer take a lot of expertise to become a cabbie - just follow the instructions of the friendly lady in the box. Cities could just sell boxes with the whole taxi package in there for a few hundred dollars slashing the barriers to entry in this market considerably. Apart from the GPS, this box would also contain the meter. I imagine it would be attached to the inside of the windshield clearly visible for both driver and passenger.

No for the price setting. We could make it possible for the driver to set the price per km or so and then have our box could display the price on the outwardfacing side of the windshield, but I am not sure that would work satisfactory. If you are picked up late at night by a cab in unsafe part of town, your room for negotiation would be rather limited. Better all our units report back to a central computer whether they are available and whether they are carrying a paying passenger. The computer could then use this information to set a publically readable price. If there is more demand for taxi services, the price would go up and more part time cabbies would take to the road and maybe more passengers would take the bus.