[Free Speech] The Taxi Crisis: A Consumer-Focused Solution

Seoul has continued to suffer from the so-called late-night “taxi shortage,” where it is difficult to hail a cab at night. The supply of late-night taxis declined in the aftermath of business-hour restrictions imposed during COVID-19, but once those restrictions were lifted, demand increased, creating an imbalance. If we take this situation as a lesson, we can not only find alternatives until supply expands, but also reorganize the current mobility system so that more flexible responses will be possible in the future.

The government has proposed raising taxi fares as a solution. However, such a fare increase is not the answer to the problem. Measures such as flexible pricing or mandatory dispatch are also far from addressing the root issue. A flexible pricing system, under which taxi fares rise through variable adjustment in areas where taxis are scarce, is a way of addressing spatial demand-supply imbalances. It is not an appropriate solution to a situation in which supply becomes absolutely insufficient during certain hours. Mandatory dispatch, meanwhile, is meant to resolve the taxi shortage faced by short-distance passengers by requiring drivers to take customers regardless of distance. But this too merely prevents discrimination based on trip distance and does not solve the taxi shortage itself.

There are flaws in the current management of public transportation. Taxi fares, like those of public transportation, are set by the government, but the way drivers’ wages are determined differs from that of public transportation. The government has also controlled the taxi industry by enforcing the same fares regardless of vehicle type and by forcibly shutting down diverse services such as the Tada Basic model. Because government intervention has standardized prices and services, supply flexibility has weakened, and the supply of late-night taxis has not recovered.

The answer becomes clear when the focus is placed on consumers. Fares should be allowed to be determined naturally by matching market demand. The taxi industry should be encouraged to compete on both price and service by easing regulations enough to allow taxi services like Tada. If consumers are given more choices, they will be able to choose from a wider variety of options according to their preferences, such as premium taxis at higher price points and cost-effective taxis at lower price points.

What the government should do is ease regulations so that transportation services can be supplied in diverse ways. It takes time for a business weakened by regulation to recover. In the meantime, the government should further expand public transportation support during late-night hours to increase options, while also lifting regulations so that a variety of products can emerge in the taxi market.

Of course, the political sphere may be reluctant to make such decisions. If the system is changed so that fares can vary depending on the service provided, some civic groups may object. Existing taxi operators will also resist if regulations on diverse forms of mobility businesses are relaxed. However, if policymakers move beyond the voices of a few organized interest groups and listen instead to the voices of consumers spread across the country, they can make the right decision.

To solve the taxi shortage, policies must be implemented based on the principles of the market economy. The market economy exists for consumers, and problems are resolved when consumer choice is respected. The government must not forget that only by easing regulations so that underrepresented consumers can have a variety of options can supply and demand finally align and the market solve the problem.

Hyogeon Ahn, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] 택시대란, 소비자에 초점 맞추면 해결 보인다

Author: Hyo-geon Ahn

Date: 2022-09-14

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=8&idx=24961