A contestable market gone wrong – Taxis in South Africa

Just covering contestable markets with my A2 and came across a relevant article in the Otago University EcoNZ@Otago magazine. Up to 1987 the transit authority in South Africa had a monopoly on public transport. It was near impossible for private taxi firms to operate and the use of public transport was very expensive – many spent 20% of their incomes on the commute. In this context the demand for taxi services was high and many illegal operations started to appear. The government, believing that a more deregulated transport market would improve its effectiveness, eased restrictions on private taxis.

A huge number of taxis appeared on the market of which the majority were large 15-seat vehicles (aka Kombis) and they ran late-night and rural services, and travelled to locations that busses and trains did not. However in order to reduce the running costs of the Kombi the road-worthiness of vehicles became a concern whilst passenger numbers grew considerably. With the transport authority basically giving a ‘free reign’ to operators and displaying no control over operation location or price, operators banded together and formed ‘taxi associations’ to compete over taxi drivers and routes. By 2003 60% of South African commuters used the taxi industry which was believed to be worth approximately R12 billion (NZ$2.2 billion) each year. Rivalry amongst taxi firms got out of hand and many resorted to violence and blackmail in order to secure rights over the most profitable routes. In fact the industry became more like something out of the ‘Sopranos’ with the hiring of hit men against rival associations.

By 1999, in response to this on-going problem, the South African government increased spending on public infrastructure and overhauled the taxi industry.

Taxi-related violence and deaths in South Africa – 1991-1999

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