Submission by the Commissioner of Competition provided to the City of Toronto Taxicab Industry Review

February 18, 2014

The Competition Bureau (“Bureau”) is pleased to provide this submission to the City of Toronto as part of its Taxicab Industry Review (“2013 Taxi Review”). The Bureau is headed by the Commissioner of Competition (the “Commissioner”).

The Commissioner is responsible for the administration and enforcement of the Competition Act (“Act”). The Act is a federal law of general application that applies to virtually all business activity in Canada. It includes provisions that address a wide range of anti‑competitive conduct, including abuse of dominance, agreements between competitors that negatively impact competition, and misleading advertising and deceptive marketing practices. The Act also empowers the Commissioner to advocate for greater competition in Canada. It is in the context of an advocate for competition that we are making this submission.

Competition is generally the best means of ensuring that consumers have access to the broadest range of products and services at the most competitive prices. However, the Bureau does not argue blindly for competition at the expense of all other policy objectives, since there may be legitimate public interests other than the most efficient allocation of resources at hand. The Bureau believes that in order to be effective, regulatory decisions must be fully informed and keep in mind the many direct and indirect impacts they may have on consumers through reduced competition. Regulation that restricts competition more than an equally effective alternative imposes unnecessary costs on Canadian consumers and businesses.

The Bureau has considerable experience in analyzing issues relating to passenger motor vehicle transportation services. As well, through our enforcement and advocacy work in various sectors, we have developed expertise in considering how the emergence of new technologies and innovation can impact competition and consumer protection in these sectors.

The Bureau receives a steady stream of complaints regarding a wide range of issues concerning the taxi industry, including would‑be drivers being unable to obtain plates, exclusive deals between airport authorities and taxi companies, predatory pricing in the form of flat rate charges, and service complaints concerning wait times and prices. While not all of these issues require remedial action, they do highlight the importance of ensuring that those responsible for the regulatory oversight over industry access, licensing and other salient competitive factors properly consider the impact their rules and policies have on competition.

The Bureau recommends that the City of Toronto’s regulatory framework for taxi services facilitate new forms of competition that are likely to benefit consumers. In particular, we recommend that consideration be given to increasing the number of taxicab licences issued and amending regulations that would allow the use of new cost‑saving software applications designed to arrange and pay for passenger motor vehicle transportation services (“applications”).

I. The Toronto taxi marketplace

In 1998, Toronto City Council established the Task Force to Review the Taxi Industry (“1998 Taxi Review”) in response to growing public concerns about a decline in service levels, safety standards and working conditions within the taxi industryFootnote 1. The 1998 Taxi Review had many positive effects on the local taxi industry, including increasing competition through the issuance of additional licences. The base of 3,451 standard licenced taxicabs in Toronto was augmented by new Ambassador licences,Footnote 2 increasing the size of the taxi industry in Toronto by about 25 percent.

It is our understanding that currently the City of Toronto has over 10,000 licenced taxicab drivers for 4,849 taxicabs.Footnote 3 No new licences have been issued in the City of Toronto since 2005. Prices for taxi licences in Toronto have also increased sharply.Footnote 4 Standard plate licences fetch prices on the market of between $300,000 and $400,000 each.Footnote 5 These prices reflect the high profits that owners expect to earn from the operation of their taxicabs.

The 2013 Taxi Review’s comparison of taxicab fares in Toronto and taxicab fares in other North American cities concludes that Toronto has among the highest fares in North America.Footnote 6 Furthermore, customers in Toronto must wait an average of nine to ten minutes for a taxicab.Footnote 7 While this is not the longest of waiting times when one consider the average waiting times of 13 minutes in Atlanta or 15 minutes in Nashville, many municipalities achieve considerably shorter waiting times. For example, in 2008, over half of customers in Ireland waited five minutes or less for a taxicab.Footnote 8

Most would agree that taxis are an important component in the transportation network of any city. The 2013 Taxi Review includes substantial evidence that suggests that the restrictive approach to taxi licensing in the City of Toronto, together with the resulting upward pressure on fares, is leading consumers to substitute other transportation options for taxis.

Competition authorities and economists increasingly accept that, in many cases, restricting taxi numbers unnecessarily limits competition and harms consumers by making taxis less available.Footnote 9 This substitution away from taxis due to artificially high prices translates into welfare losses for consumers. Taxis are important to certain segments of the population. Studies consistently show that particular groups that depend on door‑to‑door transportation, such as seniors, stay at home parents and the disabled, each account for a much higher share of taxi trips than their population share.Footnote 10 In general, low‑income groups are disproportionately higher users of taxi services than upper income groups. We respectfully suggest that inflated taxi fares decrease the amount of taxi service available to these members of the Toronto public.

The Bureau suggests that the 2013 Taxi Review consider some of the ongoing debate regarding the relaxing of entry restrictions in the taxi industry. The concern that open entry or a lightly regulated market will lead to the taxi industry being flooded, causing traffic congestion and violence, is disputed by evidence from other jurisdictions. While the case for regulation is often based on negative experiences in U.S cities that experimented with deregulation,Footnote 11 the United States Federal Trade Commission has extensively studied the taxi industry and disagreed with many of these arguments.Footnote 12 Furthermore, the OECD’s Roundtable on Taxi Services: Competition and Regulation examined the industry following deregulation in several jurisdictions and concluded that rules restricting the total supply of taxis typically led to an undersupply of services, with resulting profits accruing to licence holders rather than taxi drivers.Footnote 13

II. Issuance of additional taxi licences

The Bureau suggests that consideration be given to increasing the number of additional taxi licences issued in the City of Toronto. The range calculated in Appendix B of 307‑1,333 standard plate equivalents proposes a reasonable range of increase in the number of plates, amounting to a 7‑31% increase for the City of Toronto. This would be in line with City’s decision to increase the size of the taxi industry by about 25% following the 1998 Taxi Review. The Bureau also suggests that increasing the number of licences could be facilitated through regular auctions of new licences. This would encourage further entry into the industry and would also generate revenues for the City. As more licences become available, we expect that prices for taxi licences would drop, as greater competition eliminates the excess profits associated with scarce licences.

III. New and emerging technologies

The pace of technological change in the Canadian taxi industry has been slow, with little change in dispatching and transactions since the early 1990s. This is beginning to change, as innovative technologies, including point‑of‑sale (“POS”) terminals and software applications to request taxi services, are being introduced.

These applications, also known as digital dispatch services, allow consumers to order transport services in the form of taxis or other passenger motor vehicles. Some applications also incorporate features that allow the consumer to pay through the application. They may make use of different technologies, including smartphones, web pages, email and text messaging.

These applications offer consumers an easy, innovative alternative for traditional methods of contacting a taxi driver, such as flagging down a cab in the street or phoning a dispatcher. Applications may also offer Global Positioning System technology to allow consumers to identify nearby available vehicles and tailor their requests accordingly.

These technologies may have both positive and negative implications for taxi operators and consumers. Taxi operators may get more choices in terms of dispatches available and could see lower prices for those services. For consumers, there may be a benefit from greater convenience, more responsive services, and a more efficient allocation of resources through better matching of consumers and drivers. However, these transactions can also raise consumer protection issues, including safety and security of online payments. It is also important to ensure that consumers understand the fees and conditions associated with the services.

IV. New methods of competition and consumer protections

The Bureau recommends that any regulations applied to new service methods and technologies in the taxi industry be designed to allow entry and competition. Consumers and taxi operators benefit from competition between traditional and new products and services, and from new methods of delivering these products and services. Regulations should be limited to what is needed to protect the public and taxi operators from harm.

Competition in the taxi industry takes place on a variety of dimensions, such as price, availability, timeliness, convenience, quality, vehicle type and point‑of‑sale payment mechanism, just to name a few. The regulatory framework should be designed to take into account all of these dimensions of competition. Restrictions, whether direct or indirect, on the introduction and use of new technologies should be limited to cases where they are needed to prevent harm to consumers or taxi operators.

We recommend that the City of Toronto consider the potential direct and indirect impact of its proposed regulations on competition. We believe that unwarranted restrictions on competition should be avoided, and any restrictions on competition that are implemented should be no broader than reasonably necessary to address legitimate subjects of regulation.

V. Conclusion

The Bureau appreciates this opportunity to provide views in regard to this matter and would be happy to address any questions you may have regarding competition and consumer protection policy in the taxicab industry in the City of Toronto.

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