Taxi Industry
Monopoly
Features
The 8 taxi operators in Singapore and the most common ones are Comfort Taxi, CityCab, SMRT Taxis, TransCab and Premier. They have
96% of market share, this high sales concentration is associated with monopoly. In Singapore, ComfortDelGro (operating comfort taxi and
CityCab), has 62% of the market share and is the monopoly in the taxi industry.
In addition, there are only imperfect substitutes for taxi services, such as public transport, because taxis provide faster, more convenient and more comfortable services.
The monopoly can decide what price to sell its services at because they have control over the surcharges during peak hours, advance booking and midnight hours. Also, they charge higher prices at different pick-up locations – CBD, etc has higher flagdown fare than other areas.
The high capital outlay, to own cars, necessary to provide taxi services and time to compete with first mover are potential barriers to entry for potential sellers. Furthermore, state-created barriers to entry such as the Taxi Driver Vocational license caps the number of taxi drivers available for taxi companies and Business Licensing restricts the number of new entrants joining the industry.

Behaviour
Charges for taxi services are the same because of government intervention to control prices. This ensures that the consumers are not exploited
Price discrimination
Necessary conditions are fulfilled
Type
Reason
They are price setters because they set their prices at $2.80 for 1 st distance
1km with an additional increase of $0.20 for
385m.
The markets are separated based on
The price elasticity of demand for 1 st 1 km is more price inelastic than more than 1 km distance. This is because consumers would usually need to travel at least 1 km or they would prefer to walk.
2 nd degree
They are the price setters, as seen from the surcharge of an additional 35% of the standard meter during peak hours, minor tweaking of increased flagdown rate and late night charges, 30 cents fuel surcharge etc.
The markets for normal hours and peak hours are separated and no resale is possible.
The price elasticity of demand during the normal hours is less price elastic than during peak hours. This is because majority of the consumers are going for work or are off work during peak hours, they want to get to their destination as fast as possible.
3 rd degree
With price discrimination, the seller would charge different blocs of output at different prices
Originally, seller could only earn
P2BQ20
Now, seller could earn
0P1AQ1+Q1CBQ2, where total revenue increases by P2P1AC.
Ceteris paribus, total profits would increase.
Producers, being profit orientated, will produce at profit maximizing level- MC= combined MR as seen in (iii) at point X by the equating of MR1 and MR2 from both hours. The taxi firm supplies at 0Q3 by the sum of 0Q1 and 0Q2, so that
MR1 and MR2 is equated to the same MC. Since demand in normal hours is more price elastic (less steep), he charges a lower price in normal hours compared to peak hours.

Performance
Efficiency
(i) Static inefficiency
ComfortDelGro produces its output up to the level where P>MC . Since consumers value the last unit of the good more than it costs to produce, the good is under produced and increasing the output can increase the welfare of consumers. The under production of the good has led to the loss in society’s welfare seen in Fig. 1.1 below. Also, a perfectly competitive market would have produced the socially efficient output level of
Q
PC
, however, ComfortDelGro produces at Q
M
level of output. The fall in welfare (deadweight loss) to society seen in Fig 1.1 below. In addition,
ComfortDelGro seeking to maximise profits is producing on the falling portion of the LRAC and hence does not achieve productive efficiency.
Revenue/Cost of taxi
MC
LRAC
P
P
M
PC
Deadweight Loss
Fig. 1.1: Market for Taxis in Singapore
Q
M
MR
Q
PC
DD=AR=P
Output of taxi
(ii) Inequity
ComfortDelGro earns supernormal profits even in the long run due to strong barriers to entry. These profits go to shareholders who may be mainly upper income earners. This may worsen the income distribution in Singapore as the rich gets richer and the poor gets poorer.
(iii) Less X-inefficiency
ComfortDelGro will be less X-inefficient because, annually, TransCab and SMRT have to build fleet size and capturing network area more than
ComfortDelGro to balance the number of fleet size in operators. Hence, they will undertake measures to ensure that there is no lax in cost control to keep their AC and MC curves as low as possible.

(iv) Dynamic efficiency
ComfortDelGro undertakes R&D, such as having a hotline connecting to all taxi operators in Singapore, touch-screen pick-up locations of customers to ensure a more efficient and smoother ride for their customers. This incentive comes about from its desire to maintain its monopoly status, which might be challenged by other taxi companies.
Problems related to imperfect information and asymmetric information is frequently observed in the taxi industry.
Performance
Being a monopoly, the taxi industry is economically inefficient, with productive inefficiency and allocative inefficiency. This is because monopolies do not produce at the minimum average cost, thus productive inefficiency, does not produce at P=MC but at P>MC, thus allocative inefficiency. There is dynamic efficiency as monopolies have supernormal profits, thus they have extra funding to be used for research and to spend on expanding their industry, as seen in Comfort.