Taxi reform raises competition concerns

The previously strictly regulated taxi industry opened up for free competition in Finland in July 2018. At the request of the Ministry of Transport and Communications, the Finnish Competition and Consumer Authority (FCCA) has now assessed the effects on competition caused by the reform and the possible need to further modify the current regime to facilitate competition on the market and enhance consumer welfare. In its report, the FCCA particularly addresses the impact of the reform on prices, the role of taxi dispatch centers in the functioning of the market and the problems concerning public tendering.

Effect on prices

The FCCA report confirms the concern over the increase in taxi fares – a fact that has been noticed by many consumers especially in Uusimaa which is the most densely populated area in Finland. There may be, however, considerable price differences between companies offering taxi services.

By the way of comparison, it is interesting to note that in the bus and coach transport market, which was also recently opened up to more market-based pricing, real prices have decreased significantly. In other words, market liberalization has had an opposite impact on prices in these two transport segments.

When assessing the functioning of the taxi market it is important to note that price is not the only relevant factor. The availability of taxis is another important factor to consider. The FCCA concludes that there is a need for more accurate and reliable assessment of both taxi fares and the availability of taxis. The FCCA considers as one option to oblige taxi dispatch centers to provide such information to the competent authorities for statistical and monitoring purposes.

The role of taxi dispatch centers

The FCCA has also drawn attention to the role of taxi dispatch centers in the taxi market. It is typical that the competing taxi companies own a taxi dispatch center in the relevant dispatch area. The FCCA has found that dispatch centers owned by taxi companies do not always operate independently in seeking their own profit but rather aim to maximize the profits of taxi drivers. According to the report, the dispatch centers have sought to limit the access of new taxi operators to the dispatch centers’ services. In view of effective competition, ownership links between dispatch services and taxi companies are problematic. However, dispatch companies having different ownership structures and not linked to taxi companies have also entered the market.

In addition, the report draws attention to the issue of multihoming, i.e. the possibility of taxi operators using more than one dispatch center. Currently, a taxi operator cannot be a multihoming customer for dispatch centers. According to the FCCA, other regulatory and guidance measures should be considered, alongside competition law, to promote multihoming.

In its report, the FCCA states that “it is the most important to first intervene in the most serious restrictions, such as unjustified restrictions on supply of taxi services and binding taxi operators to a single dispatch center.” Competition law provides suitable tools to intervene in individual restrictive practices by dominant market players and anti-competitive restrictions agreed between competitors. However, competition law is not a suitable or sufficiently powerful tool for monitoring and generally regulating the sector. For this reason, specific legislation to regulate dispatch operations should be considered.

Issues relating competitive tendering

Competitive tendering of taxi rides supported by public funds, mostly by the Social Insurance Institution of Finland (Kela), should be carried out way in which an adequate supply and quality of public services would be ensured and conditions for competition strengthened consequently benefiting consumers. In a current situation, for example, Kela invites only the dispatch service providers to participate in public tenders. Taxi companies are therefore not involved in determining the prices offered in tendering processes. This adversely affects the availability of taxis which are necessary for many people. It is therefore necessary to move towards a more dynamic tendering process whereby taxi companies could themselves offer the conditions and the price at which they would agree to drive, for example, Kela rides.

No need for traditional taxi meters

The taxi reform also ended the era of mandatory taxi meters and in terms of effective competition there is no need to return to the use of traditional taxi meters. According to the FCCA, use of mandatory taxi meters may in fact reduce competition by increasing costs for taxi operators, which in turn would make it more difficult to enter the sector. Additionally, such a requirement would reduce the interest in operating a taxi business on a part-time basis and lessen the business possibilities of those operators who have chosen to use various applications to present or calculate the fare. 

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