The liberalisation of the taxi services market in Malta

Abstract

Personal mobility is essential to modern life. Locally, despite the ever increasing demand for mobility, the image of the whole public transport, including taxis remains very poor. This can be witnessed by the increase in private car ownership and private car usage. For this reason the government has proposed a reform for the whole transportation sector to meet the needs of the Maltese citizens. Government regulations in the taxi market have led to various market failures. The incumbent taxi operators enjoy market power due to the entry restriction m the sector imposed by the government. This has led the taxi sector to resemble an oligopolistic market structure instead of a contestable market. Moreover the restrictions imposed on the market have led to various negative externalities. Finally, due to the regulation that impedes taxi operators from advertising their services, asymmetric information is present in the market. Such market failures are coupled with regulatory capture which has led to the degrading state of present taxi market. The mentioned market and regulatory failures has led the government to propose a reform in the taxi market. Such reform is governed by operational and structural changes whereby liberalisation of the taxi market is the main challenge. These changes will provide greater scope for competition and thus Improved service, Increased efficiency, and lower prices. This dissertation will thus attempt to analyse the failures of the present taxi market and their consequences, and to analyse the proposed reform and the economic implications both for suppliers and users of taxi services. It will also suggest methods on how to make this reform work while at the same time reverse the negative externalities caused by failures of the present taxi market.