Economic Opportunity

Antiquated Regulations Leave Taxis in the Dust

July 28, 2016

The Mercatus Center recently released a report on one of the most regulated businesses in the United States: taxi companies.

Looking at the comparatively open taxi industry in Washington, DC, the study still unveils a host of obstacles that new entrants must bob and weave.

As authors Michael Farren, Christopher Koopman, and Matthew Mitchell write, “For a single driver hoping to start his own taxi service, this process can be daunting. In the aggregate, the number of regulatory procedures that we identify (33) and their associated costs—up to $2,643 to drive a single car as a taxi—represent formidable barriers to entry.”

Remarkably, the report finds that opening and operating a taxi company in DC involves more procedures than starting a small business in China, Venezuela, Mozambique, or Bolivia, countries with unfriendly and difficult business environments.

Thus, the success of new ride-hailing platforms, which oftentimes  offer higher quality and cheaper services, should come as no surprise.

The researchers conclude that current regulations “have shielded incumbent firms from competition and deprived customers of the benefits of price competition and quality improvement.”