When taxis are too cheap

As I wrote last month, taxi service has "an availability problem in Manhattan at peak periods. During rush hour in the rain you can stand for a long time, and fights over taxis are not uncommon." Whenever you have a set price for something regardless of supply and demand, you're going to get gluts and shortages, and there are shortages at peak times in Manhattan.

It's not always your typical rush hour. Back in the 90s, the Tuesday Night Skate would often ride up Sixth Avenue around 10-11PM, and when we got to the Rockefeller Center area there were always people standing with their hands raised. At first I thought they were giving us high fives, but they ignored me when I got closer. Eventually I realized that they were hailing cabs. There were quite a few of them, and I think they had just gotten out of Broadway theaters or Radio City Music Hall. You see the same scene on Bleecker Street, or anywhere there's evening entertainment.

Some people have opted out of the system entirely. At the Trump luxury condos on Riverside Boulevard, the city is considering setting aside curb space for the black cars that the residents have hired because taxis won't cruise that part of town.

These shortages are bad for the city. As anyone who's ever waited for a cab knows, they're a special kind of pain in the ass because you have to be constantly alert. If you go into the newsstand to get some Altoids, a cab could go right by and you wouldn't see it. If you get too wrapped up in that tweet you're sending, that jerk in the suit could grab your taxi. Meanwhile, you and that jerk in the suit, and everyone else with their hands in the air on Columbus Avenue, are standing around waiting when you could be doing something productive with your time, or at least something fun or relaxing.

The low prices are bad for cab drivers. If the fares could rise to meet demand, the drivers could potentially make enough during rush hours to pay their rent for the day. Then they could go take a nap or work on their novels instead of cruising the island like madmen. That would work for a while, at least until the medallion owners figure out what's up and jack up their rent.

Of course, the combination of low set fares and artificially scarce supply is particularly moronic.

The ideal would be a dynamic pricing system. I've mentioned "the thumb" before - the device that Douglas Adams invented for the Hitchhiker's Guide to the Galaxy that allows a user to flag down a passing spaceship. In the comments, Nathan H. linked to a review of Uber, which is essentially a new car service "base" that works via text message or iPhone or Android app.

Uber's price system is also fixed, a bit higher than the yellow cabs, but their Twitter feed is full of apologies for shortages. That may be good marketing strategy during the product launch, but people will abandon the system if it's not reliable over the long run.

With a Thumb system like this, you could vary the price depending on the number of hails from a particular area at a given time. It could be a $7 drop charge at 3PM on a Tuesday, a $2 drop charge at 10AM on a Saturday, and a $20 drop charge at 11PM on a Friday. You could probably even build price discrimination into it, offering loyalty fares and allowing customers to set price ceilings. You could even allow competitive bidding, so that you could outbid that jerk in the suit.

Even without this kind of dynamic pricing, though, you could still vary prices by time of day. The original Bloomberg congestion pricing plan included a $1 congestion surcharge for taxis between 6AM and 6PM. The Carl Kruger plan that was eventually adopted kept the taxi surcharge (reduced to 50 cents), but imposed it 24/7.

For the sake of cab drivers and customers, the city should adopt a pricing plan with at least three tiers, with the top tier high enough to discourage waiting and the low tier low enough to make it worthwhile to cruise the "inner boroughs" at some times of day. And of course they should remove limits on the overall supply of yellow cabs.