Abstract

On July 1, 1983 privately provided common carriage urban transportation was completely deregulated in Arizona. Deregulation did not directly affect subsidized public transit, but in all other respects the former regulatory framework was abolished. This paper reports on the impacts of deregulation in the first year following its advent. All urban transportation industries are included in the analysis, although the primary impacts occurred to the taxi, airport limousine, and DRT contract industries. The study focused on entry, exit, prices, service innovation, market growth (or decline), and productivity and profitability of the various industries. An adaptation of the industrial organization methodology was used to focus attention on the key economic factors influencing the outcome of the above issues of concern. Results of the first year of deregulation generally conformed to those which were hypothesized. There was no significant impact on the overall urban transportation system or on the modal preferences of travellers. No unsubsidized competitors to public transit appeared in the form of jitneys or commuter buses. The major effects were felt within the taxicab and airport limousine industries, where significant new entry occurred. Prices in the taxi market increased substantially, resulting in a reduction in demand. Productivity and profitability declined in both the taxi and airport limousine industries. Any major benefits to consumers were elmininated when the Phoenix airport authorities prohibited passenger soliciting inside the terminals, which had led to lower ground transportation prices. Prices to consumers are now almost uniformly higher than before deregulation. The prime beneficiaries of deregulation are entrepreneurs who previously were denied entry to the common carriage market, and public agencies who contract for local transit service and have seen contract rates drop because of increased competition.