CADE conducts study on individual passenger transportation

The Department of Economic Studies (DEE for its Portuguese acronym) of the Administrative Council for Economic Defense - CADE published, on 04 September 2015, the study “The market of individual passenger transportation: regulation, externalities and urban equilibrium”.

The study is divided into two main sections. The first section handles the analysis of “partial equilibrium”, encompassing issues more directly related to the consumer’s well-being provided by the new “ride-share” services. The second section handles the analysis of “urban equilibrium”, comprising the issue of individual transportation in the context of the urban economy.

In the consumer-centered perspective, the study states that the services provided by web applications of ride-share, constitute a satisfactory self-regulatory mechanism and supply a market that is not reached or is poorly supplied by taxi services, besides providing additional rivalry in the market of individual passengers transportation.

For DEE, the web applications for ride-share can bring various benefits for consumers. This new market would provide a superior substitute for particular cars for a certain group of consumers and a superior substitute for taxis for a second group of consumers.

According to the Department, the changes brought by the web applications can represent an opportunity even for taxi drivers who do not own licenses, since they will have the possibility to stay in the taxi market or to move to the ride-share market.

Deregulation – In the urban economy’s perspective, the study assessed the possibility of deregulation of the taxi market based on empirical research conducted in different countries. DEE highlights that there are three possible types of deregulation: entry, price and quality.

The diversity of experiences and results obtained notwithstanding, the conclusion was that the deregulation of entry, or the elimination of rules limiting the access to the market, as a rule increases the supply.

Concerning the deregulation of prices, with the elimination of fixed taxi fares, there is no assurance that it would result in reduction of the prices charged. According to the study, the main benefit of this alternative is the diversification of the services provided.

DEE noted that gradual deregulation processes seem to have generated better results than the simultaneous deregulation of entry and fares. The Department points out that the best alternative is the one that creates incentives for the market of individual passenger transportation to work in line with other urban public policies.

The study concludes by stating that there are not any economic elements justifying the prohibition of new providers of individual passenger transportation services. Furthermore, economic analyses suggest that under the competition and consumer point of view, the entry of new agents in the market tend to be highly positive.