Marginal Revolution: How to improve taxi markets

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How to improve taxi markets

Singapore has solved this problem, with a little assistance from satellite technology. Imagine Walrasian taxi markets. The taxi driver receives a satellite message on his little thingie, specifying where the customer wishes to be picked up and where he wishes to go. The cabbie, if interested, then enters a bid for how much he will charge. The customer is matched with the cabbie who enters the lowest bid. Amazing, no? And if it is raining, you have the ability to pay more to actually get a taxi.

This is for real (i.e., I saw it twice), but alas I cannot find anything through Google. It is called CanBid, at least on the little machine thingies in the cabs. I've opened up comments in case you know more than I do.

They also price the roads, I might add, using electronic sensors. Privacy is no issue, since you don't have any privacy here anyway.

You should consider this place for your next vacation. I came for work, but I have been consistently charmed and delighted.

Posted by Tyler Cowen on July 30, 2005 at 06:08 AM in Economics | Permalink

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» making taxi markets more efficient from The Defenestration of Blog
This sounds great, but I'm surprised he makes no mention of a costless way to make this market more efficient: ending the medallion/quota regulatory regimes that are in place in every big city. Even if the Sigaporean system were put in place in New ... [Read More]

Tracked on Aug 2, 2005 3:17:38 PM

Tracked on Aug 2, 2005 3:19:39 PM

» making taxi markets more efficient from The Defenestration of Blog
This sounds great, but I'm surprised he makes no mention of a costless way to make this market even more efficient: ending the medallion/quota regulatory regimes that are in place in every big city. Even if the Sigaporean system were put in place in... [Read More]

Tracked on Aug 2, 2005 3:24:21 PM

» Net Roundup from Financial Rounds
I'll be traveling today to the Outlaws (the Unknown Father-In-Law and the Unknown Mother-In-Law). Since we head out shortly, I thought I'd "flush the buffer" and do a quick list of some interesting posts I've seen recently: [Read More]

Tracked on Aug 4, 2005 7:53:33 AM

Comments

Yes, but what about the food?

Posted by: Jack at Jul 30, 2005 12:55:21 PM

While I could also not find anything by searching for CanBid on Google, I did find plenty of links by putting in the words: singapore taxi satellite.

Here is the link to an apparently major taxi company in Singapore, which includes loads of information on the service.

http://www.comfort-transportation.com.sg/main.html

Posted by: Willem at Jul 30, 2005 3:23:35 PM

Just checked out marginalrevolution.com for the first time, upon the recommendation of one of the writers. Cowen's 'taxi markets' post betrays a basic misunderstanding of Walrasianism. Just because single transactions are based on auctions does not make the market Walrasian! Leaving aside the partial equilibrium (Marshallian) character of such bidding, the proof for the essentially non-Walrasian character of such distributed, decentralized markets lies in the price heterogeneity that is implicit in this story: if my neighbor and I each want taxis to the airport at the same time, unless we pay exactly the same price then the market is non-Walrasian (all allocations in the core have the equal treatment property, including the Walrasian ones!).

That a market is non-Walrasian doesn't mean that it is necessarily pathological. It just means that the conventional framing of markets via Walras-Arrow-Debreu is too narrow. Price heterogeneity, ruled out by construction in Walrasian theory, is an important characteristic of many real markets, and is something that is easy to include in models of markets that are more decentralized (informationally, temporally) than the Walrasian model. Unfortunately, potentially nasty side effects of price heterogeneity, like wealth effects--also ruled out in conventional theory, via Walras' law--can arise in such distributed markets. Interestingly, another side effect of price heterogeneity is that non-Walrasian markets can have much lower computational costs than their Walrasian counterpart, making the latter unlikely to be realized when the former are possible. Details of all this can be found in the June "Economic Journal," in my paper "The Complexity of Exchange."

BTW, I realize that this is not an academic forum, but I am weary of the pop equation of any market activity with the Walrasian depiction of markets...

Posted by: Rob Axtell at Jul 30, 2005 3:56:30 PM

I've lived in Singapore for 5 years and use cabs everyday, but I've not experienced the 'bidding' nature of the service. Effectively, CanBid is a satellite based dispatch system. They (Comfort, the biggest operator here) have just instituted different pricing for peak vs. non-peak hours. But I can't offer to pay more for a pick-up in the rain nor can cabbies offer to charge more at different times. Everything is the same price. I'm happy to be proven wrong (and would gladly outbid for a cab in the rain), but I just don't think this is yet available. Sorry.

Posted by: Concerned at Jul 31, 2005 1:31:51 AM

Well, since I live here, it should be easy enough to check this out. So I called the Comfort Cab booking number and asked if I could bid higher since it was raining. They said no. One price for all. Rats.

Posted by: concerned at Jul 31, 2005 1:42:05 AM

Rob,

I think you may have focused too much on one word in Tyler´s post which,
is primarily a description of an interesting new institution
and not a theory. Having said that, however, I think you underestimate
the ability of the Walrasian paradigm to explain price hetereogeneity.

Note that in this market we are essentially dealing with unique goods,
a taxi ride at a particular time and place. In this sense the market
is "partial GE" because it can involve hundreds or thousands of
different goods at any one point in time. Notice that (if the market is
indeed as Tyler has described - and see the other comments for some
questions) then the price that I pay for a taxi will ripple through the entire system and change the price that you pay for a taxi even though you are all the way on the other side of town.

Furthermore, because of this fact even small differences in demand
conditions, perhaps due to stochastic fluctations, can change prices on a
minute by minute basis.

Finally, we have to take into account cost hetereogeneity. Suppose
we observe two rides leaving one minute apart from the same location
to the same place but at different prices. Is this necessarily a failure
of "Walrasian" markets? Not at all, because the taxis themselves may
have come from different distances to pick-up at the same location.

In other words, far from ruling out price hetereogeneity by ¨
"construction," Walrasian-Arrovian markets allow for (observational)
price hetereogeneity for at least three reasons, GE effects,
small differences in demand, and cost hetereogeneity.

This is not to say, by the way, that your explanations are not correct
(I also encourage everyone to read your work! :) ) but not all references
to Walrasian markets are necessarily "pop economics."

Best

Alex

Posted by: Alex Tabarrok at Jul 31, 2005 10:00:27 AM

Since I caught a Singapore taxi to work every day for two years, I can confirm also from personal experience the comment from "concerned" that the CanBid system does not include offering a price premium. Despite this, the Singapore cab booking system is still better than I've seen anywhere, if for no other reason than it provides reasonably accurate estimate of how long you'll need to wait.

However there is a crude substitute that is widely used, namely the booking fee (SGD 3.50 or 4.50 in peak periods). When faced with a long line at a taxi queue, those who are willing to pay this premium simply call on their cell phones and book a cab, effectively jumping the queue. I did this several times. Unfortunately there was no way for me to offer the much bigger premium I would have been willing to pay to get a taxi at rush hour when it was raining. Taxis in Singapore are clean, safe, relatively inexpensive and generally plentiful, but I beleive they are made of some secret substance that dissolves in the rain.

I don't remember Walrasian markets in my undergraduate major in economics so I'll leave that discussion to the experts. But my observation is that the biggest market distortion in taxi markets in most cities is the artificial cap on taxi licences imposed by governments. Once that is in place current licence owners have a massive incentive for rent seeking by lobbying against any increase in taxi numbers no matter how poor the level of service. Fares that are artificially capped by regulation only exacerbate this problem since they drive lower than normal returns which can only be recovered via excessive capital gains on the licence.

Posted by: Dan Hill at Aug 1, 2005 12:07:33 AM

i spent most of my Winters in 2001 to 2004 in Singapore and will be returning in January 06, and have alot of experience with their taxi system. First, I think it's interesting to note that the Singapore government uses taxi licenses as something of a release valve for unemployment. When economic conditions deteriorated ('02 or '03, I think), the government expanded the number of taxis allowed on the roads, absorbing some of the people (nearly all male) who lost their jobs in the downturn. It appears as if driving a taxi is the employment of last resort for some people.

also, while the system works well in the overwhelming majority of cases, there are some problems. To me, the biggest problem is if you happen to be in a place that taxis just don't frequent. Your request can be sent out over the system, but no driver accepts and you just can't get a taxi. I don't think they have a system where you can offer to pay, say, double to be picked up from awkward places or zones, but I could be wrong about this. In any event, I've had problems on many occasions, especially when I was off the beaten track and needed a ride home.

one final thing: rates increase after midnight, so finding a taxi at around 11.30 can be very hard sometimes. the drivers use the period before the rate change to eat dinner, or do whatever, returning to work at midnight.

so while the system is generally highly efficient (as are most things in s'pore), there are some holes in the incentives.

Posted by: David Young at Aug 2, 2005 12:37:08 PM

i've seen the system at work but never took a close look at it. i do recall another part of the "bid"... is a time factor. e.g. how fast can you get to the customer.

i'm guessing this. the "bidding" is for the % cut of the booking fee. a lower bid = more money goes to the cab company, but the winning cabby get the deal.

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