South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Killing competition: Taxis in TIA
Published: The Kathmandu Post, 18 March 2005
By: Ratnakar Adhikari

Benefits of a functioning market based economy trickles down to the ultimate raison d'etre of the entire economic activities--the consumers-- only if there is a conscious effort on the part of the government to promote competition and competitive processes. Such a competition brings about efficiency and its redistributive effects ensure that all the stakeholders will gain. However, there is no of respite for the stakeholders when the government itself is bent on killing competition. While there have been several instances of the government attempting to kill competition, the recent one relates to the operation of pre-paid taxis services in the only international airport of the country.

In the past one could look for a 'reasonably priced' cab at the Tribhuvan International Airport (TIA). 'Reasonably priced' here means the cab charging fare on the basis of the meter and nothing else. This used to be possible when taxis, which came to the airport with departing passengers, offered their extended service to arriving passengers. However, this is not possible anymore, because the government has now a well-defined policy to bar such taxis to pick up passengers from the airport. If passengers make an attempt to stop the taxi, not only s/he will be scared away by the police personnel, but the taxi driver will also be threatened.

All this is being done apparently because the government has provided license to a single pre-paid taxi operator, and allowed it to enjoy monopoly position as well as abuse its market power. Due to the propensity of this operator to extract rent from the passengers, Nepalis as well as foreigners have been duped alike. This gives particularly wrong signal to a fledging tourism industry.

When the government introduced this policy, it might have thought that it would provide assurance of quality to the passengers. However, the way the service is currently operating suggests that this objective is far from being achieved.

While the charges the consumers have to pay to obtain pre-paid taxis are at least twice as high as what they would have paid for normal taxis, the services they are receiving is only half as effective. This is primarily because taxis operated by the pre-paid service operator appear 20-30 years old. Few countries in the world would probably permit such an exploitative system to prevail.

Airport transfer systems around the world can be broadly classified into three categories--all of which provide some choice to the consumers, thanks to in-built system of ensuring competition.

The first system is the one prevalent in most North American and European cities--a truly free market system with no pre-payment whatsoever involved. As soon as a passenger is out of an airport, s/he can get inside a taxi, then reach her/his destination and pay according to the meter. In some cities, one has to pay something extra for the luggage, but the system is so transparent that one would know in advance how much one should pay.

The second system, which is seen in most South East Asian cities, is a combination of pre-paid and post-paid (normal) taxis. However, if one compares the prices paid at the prepaid counter with the one that one pays at the time of departure coming from exactly the place where one was left on the day of arrival, the latter is only 10 to 15 percent cheaper. One is then assured that the pre-paid service does not cheat, because of the fact that the elements of security and certainty pre-paid offer is well worth additional premium of 10 to 15 percent. Moreover, the majority of these cities do offer public transportation services as well.

A third system as seen in cities like New Delhi is the 'pre-paid only' system, where police personnel do not allow normal taxis to pick up passengers from the airport. The major difference is that there is not only 'one' monopolist pre-paid operator but a number of operators competing with each other for customers. One surprising feature of pre-paid services is that they offer taxis at a cheaper rate than the metered taxis. The only plausible explanation for this otherwise strange phenomenon is the 'captive market' or 'guaranteed business' hypothesis.

Furthermore, New Delhi airport also offers bus service operating between the international airport and Inter-state Bus Terminus of Delhi - the inter-state bus hub of the city.

In none of the above categories consumers have reasons to complain because of competition and the choices they have. However, by stripping passengers of the choice to hop into a metered taxi, the Nepali authorities, who have not only allowed the monopoly pre-paid taxi operator but also jealously guarded their 'rent' with the cooperation of the police personnel, are doing a great disservice to passengers and the Nepali tourism industry at large.

No recommendation is being made here, because the case is fairly straight and simple. It does not need a genius to understand how the abusive market power of the monopolist pre-paid taxi operator could be curbed. All that the government needs to do is to follow any of the models highlighted above.

Given the fact that situation of TIA is closer to New Delhi airport, the government will do well to follow that model. If that too is infeasible, as a bare minimum, the government should allow normal taxi operators to pick up passengers from the arrival gate as a transitory mechanism to provide relief.

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