What’s overlooked, I believe, in cases like this with customers supposedly “captive” to service providers, is the power of branding. Were there no fare regulation, a customer wouldn’t necessarily be at the mercy of every unknown cab driver.
Rather, companies would spring up with visible slogans they would emblazon on their cab. Consumers would know — from sources ranging from the Internet to word of mouth — approximately what fares a particular cab company or franchisee would charge when they saw them driving by on the street. It’s the same concept that fast-food restaurants and motel chains rely on for drivers on car trips who don’t have time to search around a particular town for a place to eat and sleep.
And in this case, I don’t need to point to theory, because this is exactly what happened in the early days of taxis, with the familiar “Yellow Cab” franchise. In 1907, entrepreneur John D. Hertz, who would later found the rental car company, took his excess vehicles from his Chicago car dealership and painted them the visible color of yellow. According to this article on the web site of the University of St. Francis, “Since the other taxicabs were too expensive for the average person, John made his taxicabs accessible for everyone by lowering the rates. He also told the public that his taxicabs could be wherever they wanted them within ten minutes.” By the ’20s, Yellow Cab had gone national.
So the market already had this problem worked out when cars were barely on the road. To make the taxi business again a stepping stone for the John Hertz-like entrepreneurs of today, we just need to go “back to the future.”