Getting Contract Taxi Services on Track
Contract taxi services account for over three-quarters of turnover in the Dutch taxi sector. Every year an estimated 1 million people in the Netherlands make use of contract taxi services, making this the largest segment of the taxi market in terms of turnover and passenger numbers. For some time now, however, there have been concerns in the sector about excessive pressure on prices and unprofitable contracts, which are often attributed to the tendering system. But what precisely is the relationship between tendering for contract taxi services, the quality of service and price pressure? And what effects does tendering have on the market structure?This report examines the effects of market forces on contract taxi services. Economic explanations for price pressure and economies of scale fall into two categories: (a) healthy market forces and (b) undesirable market outcomes due to market and government failures. In this latter category information asymmetry between the contracting entity (the principal) and the taxi company (the agent) about the quality of service plays a key role. Tendering entities can escape the downward price and quality spiral first and foremost by better contract management.
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