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AFCA publishes final report on sector inquiry into the taxi and private hire car market

The Austrian Federal Competition Authority (AFCA) launched a comprehensive sector inquiry into the taxi and private hire car market in September 2019.

The Austrian Federal Competition Authority (AFCA) launched a comprehensive sector inquiry into the taxi and private hire car market in September 2019. The AFCA may conduct a sector inquiry where there is suspicion of competition being restricted or distorted in a specific economic sector.

The amendment to the Occasional Traffic Act (GelverkG) introduces uniform rules for both the taxi and private hire car market, and also has an impact on online intermediation services (Bolt, FreeNow, Holmi, Uber etc). In Austria, online intermediation services work exclusively with hire car companies and therefore do not employ any drivers themselves. Austrian lawmakers’ intention was to combine the taxi and private hire car sector to form one uniform passenger transport industry.

Results of the sector inquiry

The results are explained in the inquiry’s 100-page final report. Its most important findings are as follows:

  • Innovation has slowed down. The only effect of combining the taxi and private hire car sector to one uniform passenger transport industry is to establish the original taxi sector in law as the sole business model. This prevents new and innovative business models from forming and impedes competition.
     
  • Fixed fares and market exits. It is still uncertain whether fixed taxi fares will be prescribed by law. With fixed fares, there can no longer be any price competition. Consequently, new business models such as app-based online intermediation services might be forced out of the market again.
     
  • Fewer options. Customer surveys have shown that 40% opt for new business models, which confirms that consumers are interested in new, innovative business models in the passenger transport business. However, the new rules reduce the range of options available to customers.
     
  • No competition on quality or price. For consumers, online intermediation services’ biggest benefit is that their prices are transparent and fares are comparatively low. 95% of all consumers surveyed consider price transparency to be an important factor. If fixed fares are introduced, there will no longer be such price transparency and price competition in the sector as a whole will be eliminated along the way. It is likely that prices will go up if fixed fares are prescribed. And with no price competition in the market, there will only be a very small incentive to compete on the basis of quality.
     
  • Job losses. The new rules require hire drivers to apply for a taxi licence and to sit an exam. With the limited exam places available, it is almost impossible for them to pass the exam in a timely manner. Fewer transport options may also impact negatively on transport quality, for instance because of longer waiting periods, and therefore ultimately affect consumers too.
     
  • Liberalisation effects on fares – EU comparison. According to economic literature, taxi markets are generally regulated too strictly. Price regulations may be justified, but fixed fares usually come with negative effects for the market. Austria and Germany are the only EU countries with fixed fares. The overall trend is towards a deregulation of the taxi markets. Countries like Sweden, Norway and Ireland have deregulated prices, quantitative restrictions or both. Most countries have set a maximum fare, allowing for some price competition.
     
  • Benefits of both sectors lost. Austrian lawmakers did not succeed in maintaining both sectors’ benefits, as intended. The amended GelverkG does not sufficiently consider the various business models and features of taxi and online intermediation services such as dynamic pricing, price transparency, and easy-to-use booking, payment and rating systems.

The outcome of our sector inquiry into the passenger transport market is rather sobering, competition seems to have been done away with. The new Occasional Traffic Act seems averse to innovation, and makes it difficult for new business models to survive in the taxi market. Regulation should solve problems, not create new ones. Businesses might not survive in the market with the new regulations, and jobs might be lost when fixed fares are required by law. As for the consumers, they will be left with severely limited options,” explains Director General Theodor Thanner.

Scope of the sector inquiry

To assess the effects of the new GelverkG on competition and innovation in the taxi and private hire car market, the AFCA:

Conducted a customer survey on the use of taxis and online intermediation services

  • A total of 1,243 individuals were asked about their behaviour in online interviews.
  • Customers were asked to state which forms of intermediation they preferred, whether they were able to estimate the amount of the fare, and about the product’s features.

Sent and analysed 173 requests for information – response rate not really satisfactory

  • The Authority sent 173 requests for information to taxi and private hire care businesses as well as to intermediaries. Intermediaries encompass both classic radio cab services (Taxi 40 100 or Taxi 31 300) and app-based intermediation services (Bolt, Holmi, Uber).
  • Companies with more than 25 licensed vehicles and also sole traders were surveyed.
  • At 30%, the response rate to our requests for information was not particularly satisfactory. In fact, the rate is very low compared with other sector inquiries. One radio cab service refused to cooperate at all and did not reply to the request for information.
  • Generally speaking, the online platforms showed greater willingness to cooperate than classic taxi companies and provided reliable data.

Examined the market conditions in the taxi and private hire car market

  • The final report offers an in-depth overview of the market mechanisms and describes the business models of taxi companies and online intermediation services.

Analysed regulations from a competition perspective

  • We compared the various types of regulation in force throughout Europe.
  • The sector inquiry also includes a detailed analysis of any potential impact of the legal amendments on competition and innovation.

Current legal situation:

The Occasional Traffic Act was amended in reaction to technical innovations in the passenger transport market. Under GelverkG NEW, the taxi and private hire car sector will form one uniform passenger transport industry and no longer operate as two separate sectors. The material provisions of the amendment will enter into force on 1 January 2021.

The amendment also created a need to adapt the related work regulations issued at the federal and provincial level. These regulations relate to drivers’ training and reliability (Federal Work Regulation for Non-scheduled Passenger Transport) as well as to driver qualifications and car equipment (Viennese Regulation on the operation of taxis, hire cars and courtesy cars). Drafts to amend these work regulations have meanwhile been submitted. With the GelverkG NEW’s entry into force around the corner, it appears likely that the amended regulations will be implemented on time. The Viennese Regulation has been notified to the European Commission, with the standstill period ending on 21 September 2020.

The drafts of the work regulations appear to lean towards the previous taxi regulations, and set out the introduction of a fixed fare as well as other barriers to entry to the new passenger transport market; this will pose big challenges for hire drivers and online intermediation services in particular. The final draft of the (Viennese) fare regulation is still outstanding. The amended regulation, which used to apply solely to the taxi sector, is expected to be adopted by the end of the year, as of which time it will apply to the new passenger transport industry. As the new legal parameters now stand, it appears unlikely, however, that online intermediation services will be able to continue to pursue their innovative business models.

The entire report is only in German available. A compact version of the Study in English can be found here.