Pricing models from online intermediaries could generate a benefit.

This benefit apparently

contributes significantly to the preference for online intermediaries. This is obvious, since price
transparency is an extremely important criterion for users and is also largely associated with
online brokers by the study participants.

Figure 17: Awareness of the taxi tariff - self-assessment, weighted (proportion times 100 =%), N = 1,015

Estimation of the taxi price

0.59
. 6th

0.49

. 4th 0.37

0.27

.2
0.14 0.14

0
Prefers traditional taxis Preferred online broker Know

Know the price exactly price approximately

No idea about price
N = 1,015

This already indicates that consumers can only estimate the taxi prices according to the tariff to a
very limited extent. In order to be able to roughly evaluate this self-assessment of the study
participants, the price of a traditional taxi for the following situation was also asked:

Suppose you want to order a taxi from Schwedenplatz to Vienna Central Station at around
1:00 p.m. on any working day (Monday to Friday) (this is only the traditional taxi and not an
online agent). This route is approx. 4 km long and the journey takes around 15 minutes.
Please provide an estimate of how much this trip could cost.

With the help of an online price calculator based on taxi tariffs27 the price for this route with indication
of the day and time of day was estimated at around € 14. The average price given in the survey is
around € 17, which is € 3 higher than the price of the largest taxi broker in Austria as determined by the
appraisal website. In order to be able to make a statement about the proportion of those people who
estimate the price more or less correctly, a relatively wide interval of 12-

27 see https://www.taxi40100.at/preisabfrage/
34
16 €, in which we assume in the course of our analysis that the consumers estimate the price
roughly correctly. This gives the consumer a margin of € 2 upwards and downwards, which
corresponds to a fluctuation of around 14% in one direction (and thus a cumulative 28%).
According to this, only around 36% estimate the price roughly correctly. Around 18% assume that
the price is too low, while around 46% consider the price to be too high. Figure 18 shows that
there are no significant differences in this distribution between groups with different self-
assessments. People who say that they roughly know the price are less likely to estimate the price
to be too low. However, the differences are marginal (15% as opposed to 21% and 22% in the
other groups).

Figure 18: Price estimation question, weighted (proportion times 100 =%)

Estimation of the taxi price

.5 0.47
0.45
0.41
0.38
. 4th 0.37
0.34

.3

0.22 0.21
.2
0.15

.1

0
Know the price exactly Know price roughly No idea about price

Price underestimated Price Price correctly estimated

overestimated
N = 1,015

These results suggest that consumers are only able to estimate the price of a taxi to a very limited
extent before a trip. Nevertheless, to a large extent they state that price transparency is an
important criterion for them (for which they probably also have a certain willingness to pay). Given
the given technological framework conditions, the consumer preferences raise the question of
whether the problem, which apparently consists in the ability to estimate the price, cannot also be
resolved by traditional taxi brokers or not
could at least be reduced. Furthermore, from the consumers' preference for price
transparency, it can be deduced that offers from online brokers cover an important
criterion of functioning competition: namely, they enable the consumer to get through
35
Information the choice between different business models for comparable services.

5.2.4 Importance and assessment of the product attributes

In order to be able to assess how a merger of the taxi and rental car industry will affect the
consumers concerned, it is essential to shed light on the attributes that are associated with this
service. For this purpose, a list of criteria was created which are associated with companies for
individual passenger transport and asked the respondents to rate these attributes (very important
(1), important (2), not so important (4),
completely unimportant (4)).

Figure 19: Importance of various criteria

Reliability (driver is sure to come) 1.1

Good price / performance ratio 1.3
Good local knowledge of the drivers 1.3
Short waiting time 1.4
Price transparency 1.5
Quality or condition of the vehicle 1.6
Good company reputation 1.7
Particularly inexpensive 1.7
Offers fair working conditions for the drivers 1.7
Good German language skills of the drivers 1.8
Name of the driver and registration number of the car known 1.9
Cash payment not absolutely necessary (credit card / ... 2.0
Can order the vehicle online. Driver 2.1
uses navigation system 2.2
GPS tracking of the journey possible 2.2
Possibility to evaluate the trip afterwards 2.5
Share the trip with family / friends 2.7
n = 1,015 completely unw4thcorrect 3 2 very important1G
MW

The respondents assigned the greatest importance to the reliability of the arrival of an ordered
vehicle, see Figure 19. Around 98% of the respondents state that this criterion is important to
them. Figure 20 shows that almost half of the respondents (44%) see taxis and online brokers as
equally reliable. 39% think that this is more the case with traditional taxis and 15% see the
reliability more with online intermediaries.

36
 Figure 20: Connection of various criteria with taxi vs. online brokers, weighted, ranked
Product importance according to the mean (in%)

Reliability (driver is sure to come) 39 44 2 15th

Good price / performance ratio 14th 28 6th 52

Good local knowledge of the drivers 47 35 9 8th

Short waiting time 28 46 3 22nd

Price transparency 14th 20th 5 60

Quality or condition of the vehicle 33 47 4th 16

Good company reputation 47 30th 9 14th

Particularly inexpensive 7th 14th 9 69

Offers fair working conditions for the drivers 45 26 20th 10

Good knowledge of German by the driver Name 30th 39 22nd 9

of the driver and license plate number of the car known Cash 21 33 7th 40

payment not absolutely necessary (credit card / ... 13 40 4th 44

Can order the vehicle online. 7th 31 1 61

Driver uses navigation system 11 59 2 28

GPS tracking of the journey possible 9 26 10 55

Possibility to evaluate the trip afterwards 8th 16 10 66

Share the trip with family / friends 12th 39 15th 34

0 10 20 30 40 50 60 70 80 90 100

Rather applies to traditional taxis. Applies to both equally

n = 1,015 Does not apply to either of the two Rather applies to online intermediation services

A good Price-performance ratio is very important for the majority of those surveyed. Around 98% of the
Study participants rate this characteristic as important. Here, 52% of the respondents judge that
this is more the case with online brokers and 28% believe that this applies equally to traditional
taxis and online brokers. Only 14% find traditional taxis good value for money.

In view of the current spread and use of navigation devices in road traffic, the importance of good
local knowledge on the part of the driver seems somewhat surprising. As expected, this is more
likely to be seen with traditional taxis (47%) than with online brokers (8%). 35% are of the opinion
this is to be found equally in both.

A short waiting time until the vehicle arrives is generally considered to be important by over 95%
of those surveyed. Almost half of the respondents (46%) consider this to be satisfactory for both
business models. In contrast, 60% of those surveyed perceive price transparency as a given for
online intermediation services. Only 14% consider this to be true for traditional taxis and only 20%
see it as a reality for both. This result makes it clear that consumers consider the tariff-regulated
pricing of traditional taxis to be less predictable
37
or to be more dependent on traffic conditions than the surge price model of platform brokers,
where you know the average price in advance.

The condition of the vehicle and the company's good reputation are also important to many
consumers. Almost half of the respondents (47%) believe that the vehicle is in a satisfactory condition
for traditional taxis and online brokers. On the other hand, the online brokers do not have a good
reputation for many of the respondents. Only 14% see this as fulfilled with online brokers and 30% with
both business models. This is different, as expected, with the attribute “particularly inexpensive”. Online
intermediaries are mainly assessed as such (69%). Only 7% of the respondents believe that this also
applies to taxis and 14% believe that it applies to both.

Hand in hand with the assessment of a company's good reputation goes the assessment of fair
working conditions for drivers. These are only seen by 10% of those surveyed at online brokers.
Overall, 20% of those surveyed are of the opinion that neither of the business models (i.e.
traditional taxis and online intermediaries) offer fair working conditions for drivers, 26% believe
that the working conditions are fair for both models and 45% believe that for traditional taxis. With
regard to the German language skills of the drivers, 39% find that this is available with traditional
taxis and online brokers and 22% rate this as inadequate for both models. 30% of those
questioned find this better with traditional taxis.

With an average value of 1.9 in the ranking, the criterion “known driver's name and license plate
number” is not considered to be particularly important. 40% of those surveyed see this criterion already
being implemented in online intermediation services. This high proportion is probably explained by the
fact that, for example, at UBER, a comparison of the driver, the vehicle model and the license plate
counts as part of the ordering and usage process.28 33% see this criterion already being implemented in
both business models. For only 21% of those surveyed, this criterion is met with traditional taxis,
although the name of the trader (not the driver) and the vehicle's license plate number are already
required on the dashboard. In the future, the driver's taxi ID will also have to be visible and legible on
the dashboard (Section 4 (3) Wiener Landes-BO NEW).

For the remaining criteria, which are further down in the ranking, such as: Cash payment is not
absolutely necessary, the vehicle can be ordered online, the driver can use the navigation system, GPS
tracking of the journey is possible, the possibility of retrospective evaluation of the journey and
sharing the trip with family / friends, it concerns criteria which have developed with technical
innovations in electronic communication. All of these attributes are relative only by one

28 see for example: https://www.UBER.com/at/de/ride/how-it-works/, accessed on August 20, 2020

38
low proportion of respondents (between 7% and 13%) attributed more to traditional taxis. Much more
often, the respondents see these criteria as being fulfilled for online intermediation services (between
28% and 66%) or for both models (between 16% and 40%).

5.2.5 Questions about the perception and assessment of the effects of the "Lex UBER"
The taxi and rental car market is characterized by major regulatory upheavals, which will
ultimately have a significant impact on the overall economic well-being on the market. Since
consumers' pensions will also be affected, the aim of the survey was to determine the attitudes of
the population towards this change in the regulatory framework.

The survey shows that just over a quarter (27%) of the relevant population group has already
heard of the innovations. Men are more informed in this regard (37%) than women (17%). In order
to bring all respondents up to date, they were briefly informed that the taxi and rental car
industries will be subject to the same rules in the future. The following excerpt was found in the
survey:

Through the Amalgamation of Taxi- and of Rental car industry to the

“Passenger transport by car” will presumably be subject to the binding taxi tariff in the
future in addition to traditional taxis as well as online brokerage services.

The question of whether there would be changes in the respondents' own usage behavior is
particularly interesting. Two thirds (65%) state that this will not affect their usage behavior. This
result can also be seen in Figure 21. However, a quarter (25%) stated that they would use online
brokers less. Here, too, a difference can be seen depending on the age group of the respondents:
the younger a person is, the less they intend to use online switching services after the change.
From this it can be deduced that a significant part of the respondents will no longer be able to
benefit to the same extent from the special characteristics of online brokers. 10% of the
respondents also state that they would use online brokers more intensively under the new
framework conditions. This could result from a preference for the perceived requirements
described above with regard to local knowledge and German. However, the proportion of those
people who would now use online intermediaries more is significantly smaller than the proportion
of people who would significantly limit their use.

39
 Figure 21: Change in usage behavior, weighted

25% Yes, I would use online

switching services (e.g.
Uber, Bolt, Holmi) less.
Yes, I would use online
switching services (e.g.
Uber, Bolt, Holmi) more.
65% No, my usage behavior
10% would not change.

n = 1,015

Figure 22 shows which alternative transport options those respondents who indicated that they
would use online brokers less would switch to. Public transport is largely mentioned as the first
alternative. Since, as already described in detail above, online brokers are perceived as much
cheaper on average, this result indicates that some very price-sensitive consumers will no longer
use taxi and rental car services, or at least use them less. Your own vehicle is

Figure 22: Alternative with changing usage behavior, weighted, N = 251

public transportation 2.2

own vehicle (car, motorcycle, etc.) 2.9

traditional taxi companies 3.6

bicycle 3.8

Car sharing (car2go / DriveNow, ...) 3.9

Rental car (e.g. Sixt, ...) 4.6

Rank66 5 4th MW 3 2 Rank 11

the second most important alternative. She will be traffic- and most detrimental to the environment
impact. Only then do traditional taxis come, which suggests that overall demand (created by new
business models in the taxi and rental car market) could decline again. The bicycle is the fourth
most important alternative. Car-sharing and rental cars rank at the bottom of the alternatives.

40
Almost half of the total respondents (43%) view a potential market exit by online brokers such as
UBER or Bolt negatively or perceive this as a worsening. 37% of the respondents said that they
would not be affected and 20% would even be positive about it. Interesting conclusions can be
drawn in this context from the consideration of the subgroup of those people who prefer to use
traditional taxis, see Figure 23. While 50% of this group would not care to leave, 27% think this is
positive. 23% of those people who prefer to use traditional taxi brokers would perceive an exit
from the market by online brokers as negative or as a deterioration. This suggests that a not
insignificant proportion of a quarter of people with a preference for traditional taxis support
competition with online brokers. It is conceivable that competition in this market is not only
manifested in price (which is predetermined for traditional taxis), but also in other dimensions
such as the various attributes related to the quality of service described above.

Figure 23: Assessment of a potential market exit by people with a preference for traditional taxis,
weighted (proportion times 100 =%)

41
6 The regulation of the Vienna taxi market from a

competitive economic point of view

6.1 The taxi market as a market for trustworthy goods

From a competitive economic perspective, taxi services are so-called “credence goods”. It is
characteristic of trustworthy goods that consumers can neither before nor after consumption be
able to judge with certainty the quality of the purchased service. For example, a tourist in Vienna
(without additional aids such as a mobile phone) cannot determine whether the taxi driver has
chosen the most efficient route.

6.1.1 Economic theory of trustworthy goods

Trustworthy goods are characterized by information asymmetries between the buyer and the
seller. The decisive factor for the classification as a trustworthy good is that consumers do not
know which service or what quality they need and even after consumption do not necessarily
know what quality they have received (Dulleck and Kerschbaumer,
2006)29 A multitude of products and services, such as a taxi ride in a strange city, medical services
and car services, share this characteristic. For example, a tourist in a strange city cannot be sure
whether the taxi driver took the shortest route.

The model by Dulleck and Kerschbaumer (2006) summarizes the theoretical literature on trustworthy
goods and is used as a basis for analyzing the market for trustworthy goods. For this purpose, the
model is first described, the circumstances under which the market for trustworthy goods produces
efficient results are explained, and finally the taxi service is analyzed in terms of the model.

To illustrate the model, an example is used first. Suppose a tourist in Vienna is looking for a taxi to
get from Vienna Central Station to Stephansplatz. Since the passenger is in a foreign city, he does
not know the shortest route that leads to the desired destination. It can also be assumed that the
passenger is not familiar with the Vienna taxi tariff. In contrast

29 Nelson (1970) differentiates between normal goods without information asymmetries, search goods in which consumers can
find and recognize qualities, and experience goods in which the quality is known to the consumer after a single consumption. The
concept of the trust good goes beyond this and concerns goods for which it is not clear what quality the good has, even after the
good has been consumed (Darby and Karni, 1973).
42
it can be assumed that the taxi driver is able to identify the shortest route and to determine the
correct price using the taximeter. This situation, especially with a view to the fact that the
The expert (the taxi driver) possesses more information than the Consumer, will as
information asymmetry referred to. This information asymmetry is a characteristic of Everyone

trustworthy asset. This characteristic enables the taxi driver to be the consumer to
disadvantaged.

Since the tourist is not familiar with the Vienna taxi tariff, the taxi driver can decide not to turn on
the taximeter in order to charge a higher price for the route than would result from the Vienna
taxi tariff. Neither before nor after the transport service is it possible for the tourist to determine
the correct price (without further aids). Specifically, this means that the taxi driver charges an
inflated price. This is referred to as overcharge in Dulleck and Kerschbaumer (2006).

If the taxi driver knows that the tourist does not know the area, another type of unfair treatment is
possible. For example, the taxi driver can choose a route that is longer than necessary. Thus
“more” taxi service is provided than the tourist needs. Since the tourist is not aware of the shortest
route either before or after consuming the taxi service, there is no risk from the taxi driver's point
of view that the tourist will become aware that he has been treated unfairly. In this case Dulleck
and Kerschbaumer (2006) speak of overtreatment.

Finally, the taxi driver could also decide to let the tourist get off before they have reached St.
Stephen's Cathedral, for example in order to take the fixed part of the tariff that is charged for
every new passenger. However, since it is very likely that the tourist will realize that he is not at the
desired destination, and thus the risk is high for the taxi driver that his lack of fairness will be
discovered, this type of disadvantage in the taxi and rental car market is unlikely. In Dulleck and
Kerschbaumer (2006), the inadequate performance is referred to as an undertreatment.

Thus, the disadvantages described above, which are possible due to the characteristics of the
trustworthy goods, can be summarized as follows:

  Overcharge:Charging a price for a quality that was not provided.

  Overtreatment:Selling a service that is not necessary; and

  Undertreatment:Selling a service that does not meet the consumer's needs and does not

solve the original problem;

43
Dulleck and Kerschbaumer (2006) use a theoretical model to examine the three practices
mentioned and under which conditions the market disciplines the experts in such a way that there
is no incentive to do so. The model can be described as follows: Consumers have a problem that
can be fixed by the service of an expert. The consumer's problem can be either a cheap problem
or an expensive problem.30th The expert can handle the consumer's problem with either a cheap
service or an expensive service. It is believed that a cheap problem can be fixed with both cheap
and expensive service. However, an expensive problem will likely only be fixed by an expensive
service (rather than a cheap service).

It should be noted that the customer cannot determine ex-post whether he was treated unfairly as long
as the service provided is at least of the required quality. That is, if the consumer has a cheap problem,
he needs at least the cheap service, but the expensive service also solves the problem. Since the
consumer himself does not know ex-post what kind of problem he had and can only see the result of
the service, he does not know whether he has been cheated. This means that in the case of
overtreatment, he cannot determine the disadvantage. Only in the case of undertreatment does the
consumer recognize ex-post that he was treated unfairly because the quality provided did not meet the
requirements of the problem.

All experts in the market can provide both cheap and expensive services. The model assumes that
consumers know the prices for the respective service ex-ante. As already described, due to the
characteristics of the trustworthy good, the consumer is not aware of whether he needs the cheap
problem or the expensive problem and subsequently the cheap or the expensive service. The
expert is able to diagnose the problem and thereby determine whether the consumer needs the
cheap or the expensive service.

After diagnosing the problem, the expert gives the consumer a recommendation as to which
service is right for their problem. It should be noted that the recommendation does not
necessarily have to be congruent with the diagnosis. This means that the expert can give the
consumer a recommendation that does not correspond to the result of the diagnosis.

For example, if the expert determines that the consumer has the cheap problem, he can recommend
either the cheap or the expensive service to the consumer. In the event that the expert does

30th In practice there are usually more than two problems. The results of Dullek and Kerschbaumer can also be applied to
these cases (cf. Dulleck and Kerschbaumer, 2006, FN 5). To explain the model, the specific case of two problems is
elaborated.
44
recommends cheap service for the cheap problem, the consumer's problem is efficiently solved
and unfair treatment does not take place.

The expert could, however, recommend the expensive service for the cheap problem and thus
disadvantage the consumer. If the expert recommends the expensive service, he can actually carry out
the expensive service although the cheap one would have been sufficient (overtreatment). However,
the expert could also carry out the inexpensive service after recommending the expensive service, but
charge the expensive service (overcharge). In the case of overtreatment as well as overcharge, the
beneficial problem of the consumer is solved. Accordingly, he cannot determine whether he was
treated unfairly.

Once the expert diagnoses the expensive problem, he also has the option of recommending either the
cheap or the expensive service. As already described, the cheap service does not solve the expensive
problem. If the expert therefore performs the cheap service, for example to save costs
(undertreatment) and then charges the consumer, he will refuse because the problem has not been
solved and the behavior is noticeable. If the expert is performing the expensive service on the
expensive problem, that transaction is also efficient.

The result is that in three out of four cases the consumer does not know ex-post whether he has been
disadvantaged.

Dulleck and Kerschbaumer (2006) identify four essential conditions under which the market offers
incentives for experts not to disadvantage the consumer (see Table 1).

Table 1: Assumptions on the market for trustworthy goods in Dulleck and Kerschbaumer (2006)

adoption effect

Consumer homogeneity Prevents price discrimination

Obligation Consumers only seek out an expert

liability Prevents undertreatment

Verifiability Prevents overcharge

The central result in Dulleck and Kerschbaumer (2006) is that, under the four assumptions, the price
mechanism can be designed in such a way that the experts have no incentive, the consumers
45
to disadvantage. For example, in a market where there is homogeneity, commitment and
verifiability, the optimal pricing is such that the profit margin for the cheap problem is the same as
the profit margin for the expensive problem, and there is therefore no incentive to disadvantage
(see Lemma 1 in Dulleck and Kerschbaumer, 2006). If there is liability instead of verifiability, it is
not profitable for the expert to disadvantage consumers in the sense of overtreatment, since the
expensive service has a lower profit margin than the cheap service (for a fixed price).

In the context of the taxi and rental car market, consumer homogeneity means that every
consumer, for a given route, receives the same value from consuming the taxi service. The
obligation is implicitly fulfilled in the taxi and rental car market if the consumer does not ask which
route the taxi driver will take. This is especially true when it comes to a consumer who is not
familiar with the area. Since the consumer only pays when he has reached his destination, there is
also the condition liability for the taxi service. Finally, the correct use of the taximeter also ensures
verifiability, as the taxi driver cannot charge more than the taxi tariff.

In the context of the taxi market, the four conditions that Dulleck and Kerschbaumer (2006) identify
would look like this: if the taxi driver switches on the taximeter, the passenger is not familiar with the
area and only pays for the transport at the destination, the taxi driver will set prices that reflect the
profit margin for a long distance is less than for a short one. Accordingly, it would not be profitable for
the taxi driver to disadvantage the passenger in the sense of overtreatment.

The tariff for taxi services in Austria is regulated. Often the regulation provides for a two-part tariff.
The fixed part of the tariff is charged every time a passenger gets on, and the variable part
depends on the number of kilometers and the journey time. This creates an incentive for taxi
drivers to also drive short distances. Specifically, this means that the profit margin for short trips is
higher compared to long trips. However, in practice this does not completely eliminate
overtreatment (Balafoutas et al, 2013).

One possible explanation for the persistent problem of overtreatment is that the incentives provided by
the two-part tariff are not sufficient to transport passengers efficiently. In addition, the incentives to
disadvantage the passenger change with the time of day. For example, during periods of low demand,
a taxi driver has more incentive to treat the passenger unfairly because the likelihood of a new
passenger getting on is less. Dulleck and Kerschbaumer (2006) argue that a fixed tariff, which is the
same for all taxi journeys (regardless of the duration or route), eliminates all incentives, penalizing the
passenger in the sense of overtreatment, since a longer route does not mean any additional profit for
the taxi driver. Of course, that's because of the heterogeneity of

46
Taxi rides are not enforceable in practice. However, there are markets, such as patient transports
or airport transfers, where a fixed tariff can be used.

Another difference between the practice and the assumptions in the model is that the taximeter is
not always switched on, although this is required per se. This makes it possible for customers to
overcharge in the sense of overcharge, as the passenger has no way of checking the fare31. In fact,
overcharge is not uncommon in practice and often hits passengers who are unfamiliar with the
location. This means that, despite the existence of a binding tariff designed to help solve the
problems associated with trustworthy goods such as taxi rides, consumers could be treated
unfairly due to asymmetrical information and the consumer surplus would be reduced as a result.

6.1.2 New technologies and their importance for the taxi market
Using the model by Dulleck and Kerschbaumer (2006) it can be clearly seen that the problem of
trustworthy goods in the taxi market can be reduced to two cases: (i) Overtreatment, and (ii)
Overcharge. The regulation of the taxi market aims to prevent these two types of disadvantage for
consumers through various measures (eg taximeters), among other things. In addition, the safety
of passengers is ensured through qualitative regulation. In order to make regulation efficient, the
question arises whether regulation in itself is the best instrument to achieve the desired effects
with minimal societal costs. The next step is to determine whether regulatory instruments (such as
taximeters) achieve the desired effect,

New technologies, especially mobile phone applications (“apps”), have the potential to prevent
disadvantages and can achieve effects similar to those of regulation. In order to understand what
potential apps have to prevent disadvantage on the one hand and to replace regulation on the
other hand, various aspects of apps are explained and the likely effects are highlighted. In
particular, reputation systems, GPS technology and travel cost estimates seem to be promising
aspects of apps to supplement or replace regulatory measures.

In most apps, both consumers (passengers) and providers (drivers) have profiles. A large amount
of information is stored in these profiles, which is used for various purposes

31 As such, a passenger could research the local taxi tariff (for example on a mobile phone) and thereby estimate the fare.
However, it can be assumed that this rarely happens in practice.
47
be able. One of these pieces of information is the driver or passenger rating. This works in such a
way that after each trip, both the passenger and the driver have the opportunity to give an
evaluation for the other. In the UBER app, for example, a rating between one and five stars is given
and, according to the company, is an essential part of guaranteeing service quality32. In addition,
UBER states that a higher rating increases the likelihood for the passenger that a driver will accept
the request (and vice versa from the passenger's point of view).

It is essential for this mechanism that both the passenger and the driver have access to each
other's assessment before making a purchase decision. The primary task of the assessment is to
signal to the passenger whether the driver is trustworthy.33 It should be noted that conventional
qualitative regulation fulfills a similar task: According to Section 6 BO 1996, a taxi driver license can
only be issued if the prospective driver is trustworthy.

The real problem of trustworthiness is that of information asymmetry: In the absence of

regulation, assessments or other signals, the passenger does not know whether the driver is
trustworthy (Slee, 2013). In addition, it should be noted that the trustworthiness of the signal itself
plays an important role: In a situation where the driver can signal to the passenger that he is
trustworthy, this can only be effective insofar as the passenger believes this signal (Slee, 2013).

The two fundamental differences between the signal given by license testing and that given by
appraising an app are the level of centralization and the competence of those who give credibility
to the signal.

The institutionalized signal that comes about through the license check is generated by a central
body: the test center. The advantage of the central system is the consistency of the assessment
and the clear definition of criteria that make up the signal of trustworthiness. A clear disadvantage
is that the signal is issued ex-ante. This means that a driver is certified as a trustworthy taxi driver
without ever having driven a taxi. In contrast, the reputation system in apps is based on a
decentralized, fragmented system: ratings are given by passengers and an average value is
calculated. In contrast, the reputation system of the apps can be understood as an ex-post signal.
This means that a driver must be proven to be trustworthy by driving, to be able to send a credible
signal. In addition, online

32 See https://www.UBER.com/en-EG/blog/how-the-UBER-rating-system-works/
33 See Slee (2013).

48
Intermediaries, such as UBER, have a central complaint point and can track every journey via GPS
in order to increase consumer safety34.

Another important aspect is the homogeneity of the service. For example, by evaluating a film, a
consumer cannot determine with certainty ex ante whether he or she likes the film. In this case,
while there may be a multitude of reviews, they are not as informative as they could be due to the
heterogeneity of the product. In contrast, it can be assumed that the rating of a taxi service is a
good signal for its quality. This means, in contrast to a film, that the expectations for a taxi service
are usually the same for every passenger.

Slee (2013) names reciprocity in reputation systems as a possible defect that can erode credibility.
For example, 98.9% of all have ratings for BlaBlaCar35 the maximum 5-star rating. One reason for
this can be reciprocity: If a passenger gives a bad rating, they have to fear that they will also get a
bad rating from the driver. Therefore, in most cases, 5-star ratings are given. This can mean that
the integrity of the entire reputation system is undermined and the credibility of the signal is lost.
Slee (2013) therefore argues that online reviews are not a credible signal for trustworthiness or do
not solve the problem of signaling trustworthiness. It should be noted, however, that the
evaluation of the other side is very often only published on many online platforms (such as AirBnB)
when both participants have submitted their evaluation or a certain time has already passed.

In principle, reputation systems are very widespread in digital markets and consumers believe
peer reviews36. On the other hand, it has been empirically proven that customer ratings appear
artificially high in many cases (see Filippas, Horton, Golden, 2019). For example, Nosko and Tadelis
(2015) show that the median seller on eBay has a rating of 100% and the 10th percentile is 98.21%.
Therefore, it cannot be said with certainty that reputation systems on the Internet can necessarily
completely replace institutionalized qualitative regulation, but it does seem to some extent to be
able to replicate the effects efficiently.

34 See. https://www.UBER.com/at/de/ride/safety/
35 BlaBlaCar is one of the largest ridesharing platforms in Europe, https://www.blablacar.de/.
36 See Resnick et al (2000) definition of peer reviews
49
Most mobile phone apps also have two other advantages over traditional taxi services: the fare
and the fastest route are known before the purchase decision is made (Harding et al,
2016). For example, UBER estimates the fare and provides an interval in which the final fare is
located. This means that consumers can be certain of how much the journey will cost before they
start their journey, thus preventing an overcharge mechanism. It should be noted that this
technology is also technically available to the traditional taxi industry in principle, but the price is
determined exclusively according to the tariff. UBER's fare has a fixed component (“booking fee”)
and a “base rate” that changes depending on the behavior of supply and demand. The Austrian
taxi tariff is also based on a tariff that has a fixed component and a fixed "base rate" that is
calculated according to distance or travel time. It is thus possible37

Harding et al (2016) argue that the taxi market has characteristics of the so-called "thin market"
problem: a small number of buyers and sellers makes it difficult for a transaction to take place.
One reason for this is, for example, that the low number of providers and buyers results in
considerable search costs. This means that consumers and providers have to spend time trying to
find each other. This increases the transaction costs in the market. As such, there are many buyers
and sellers in the taxi market, but these are geographically separated and the thin market
problem is therefore present in many of these local markets.

The thin market problem is solved by the fact that UBER on the one hand massively lowers the
market entry costs (and entry speed) via-á-vis the traditional taxi business and on the other hand
reduces transaction costs. Harding et al (2016) describe that the characteristic dependence on
demand and supply in the taxi market means that an increase in supply leads to an increase in
demand. The perception that a large number of consumers are active in the market creates
incentives for providers to offer their services. Similarly, the perception of a large number of
providers attracts consumers, and an original thin market becomes a “thick market”, in which the
problem of thin markets is eliminated through the high number of consumers and providers.

The lowering of transaction costs is brought about by apps by offering an efficient marketplace.
This means that both buyers and sellers have a centralized “clearing house”, regardless of their
geographical location, in which they can access relevant buyers and sellers

37 There are already apps, such as those offered by mytaxi, that estimate the fare. See https://www.taxicalculator.com.

50
is guaranteed. The search costs, and thus the associated transaction costs, are thus reduced and
the efficiency in the market increased.

Another problem in the taxi market that can be addressed by app technology is the
heterogeneous profitability of taxi rides. Harding et al (2016) summarize the problem as follows: a
short taxi ride in the city is likely to be more profitable for the taxi driver than a long trip to a
remote location where an empty return trip is likely. Accordingly, the short city trip is less
expensive for the taxi driver than the long route. A fixed, regulated taxi tariff prevents taxi drivers
from adequately reflecting various costs in the price. For consumers in the traditional taxi market,
this has the advantage that the prices for certain, longer distances are not excessively expensive
compared to short journeys short city trips are cross-subsidized. In contrast, Harding et al (2016)
argue that UBER's dynamic pricing enables local supply and demand to be reflected in the price.
Harding et al (2016), however, leaves it unclear to what extent dynamic pricing solves the problem
of cross-subsidization.

The app or a mapping service integrated in it (e.g. via Google Maps) enables even a passenger who is not familiar with the area to

identify the fastest route. In the UBER app, for example, drivers are not forced to follow the GPS route, but the app does

authorize the passenger to identify overtreatment. Thus apps have the potential to solve the problem of trustworthy goods (to a

certain extent) (Harding et al, 2016). In addition, UBER estimates a price interval for each booking in which the price will ultimately

move. This means that the consumer has the certainty that the price will not be outside the interval; an upper and lower limit of

the price. For the driver, this means that the price depends only to a certain extent on the kilometers driven or the travel time. It

follows that the driver's incentive for overtreatment is greatly weakened. Liu et al (2019) show that taxi rides are on average 8%

longer on tariff-compliant airport rides compared to UBER rides. However, the analysis also shows that the average length of

journeys in dense urban areas is the same for UBER journeys and taxi journeys. It should be noted that the mapping technology

is in principle also available to the traditional taxi industry and is already being used that the average length of journeys in dense

urban areas is the same for UBER journeys and taxi journeys. It should be noted that the mapping technology is in principle also

available to the traditional taxi industry and is already being used that the average length of journeys in dense urban areas is the

same for UBER journeys and taxi journeys. It should be noted that the mapping technology is in principle also available to the

traditional taxi industry and is already being used38.

6.1.3 Empirical literature on trustworthy goods

An empirical study by Balafoutas et al (2013) shows that overtreatment and overcharge occur
quite often in practice. In the experimental study, the investigators examine taxi rides from

38 See https://www.taxi-calculator.com
51
Athens airport to city center. An important aspect of the study is that the investigators took on
three different “roles” for each route in order to test whether local passengers are just as
susceptible to disadvantage as non-local passengers. The three roles are:

1. Local Athenian: in this role the passenger only names the destination in Greek;

2. Greek passenger, but not familiar with the area: the passenger names the desired destination in
Greek, but also asks whether the taxi driver knows the destination and adds that he does not know
the area; and

3. Foreigners: the passenger states the desired destination in English, but also asks whether the taxi
driver knows the destination and adds that he does not know the location.

The different roles serve to manipulate the perception of the passenger. For example, in the case of a
Greek passenger who is not familiar with the area, the additional statement that he is not familiar with
the area should serve to make the taxi driver aware that the passenger does not know which route is
the shortest.

In total, Balafoutas et al (2013) carried out 248 experimental taxi rides with an average length of
13 kilometers over 16 different routes. The result of the study shows that both Greek people who
are not familiar with the area, but also foreigners, were transported to their destination via
significant detours. Balafoutas et al (2013) show that of the average 13 kilometers traveled, 5% can
be attributed to overtreatment.

In the role of a foreigner, the researcher was charged an excessively high price in 26% of the trips
(overcharge). In the roles of the local Athenian and the non-local Greek, too high a price was charged in
only 6% of the cases. The price was on average 25% (3 €) more expensive than it should be according to
the Greek taxi tariff and was higher in comparison with the damage caused by overtreatment (1 €).

Kerschbaumer and Sutter (2017) emphasize, however, that the results also show that 77% of the journeys in
which investigators assume the role of foreigners did not take place overcharge. This is astonishing, since in
this case in particular the incentives to overcharge the passenger are particularly high.

The study by Balafoutas et al (2013) proves for the Athens taxi market that taxi drivers exploit
information asymmetries and related incentives that arise from trustworthy goods by treating
passengers unfairly in the sense of overtreatment and overcharge.

52
In Dulleck et al (2011) the effect of liability and verifiability on market results is investigated
experimentally. The study included 936 respondents who were randomly assigned the role of
either a buyer or a seller. The first task of the buyer was to set a price for two possible quality
levels. Based on this, the buyers decided if they wanted to interact with the sellers. If the buyer
decides positively, the seller has been informed about what quality the buyer actually needs. The
seller then had the option to provide one of the two quality levels and to charge one of the two
prices.

In the reference group of the experiment, the sellers were free to decide what quality they would
provide and what price they would charge. This made it possible to disadvantage buyers in terms
of overtreatment, undertreatment and overcharge. The hypothesis was that market efficiency,
measured by the fraction of wealth actually generated by the interaction of buyers and sellers,
increases through liability and verifiability. Thus, Dulleck et al (2011) directly test the central result
of Dulleck and Kerschbaumer (2006) that the price mechanism is efficient under liability or
verifiability.

To implement liability, sellers had to provide at least the quality that buyers needed. This means
that undertreatment was in fact not possible. Verifiability in the context of the experiment means
that sellers could only ask the price for the quality actually provided. Thus, it was not possible for
sellers to treat the buyer unfairly in the sense of overcharge.

The effect of adhesion was significantly high. The efficiency in the market (as defined in paragraph
34) was 84% compared to an efficiency of 18% in the reference group. In contrast, the effect of
verifiability was small. The efficiency was only 16%, i.e. 2% lower than in the reference group.

The results of the study are not entirely congruent with the theoretical predictions of Dulleck and
Kerschbaumer (2006). As expected, liability increases market efficiency, but verifiability seems to
have little or no effect. In Kerschbaumer et al (2015) it is shown that this behavior can be explained
with non-standard preferences.

In a market where verifiability is given, the poor market efficiency can be explained by certain
social preferences. What is essential for this is the theoretical market solution that in the market
for trustworthy goods under verifiability, prices with identical profit margins are the only stable
solution. Therefore, sellers have no incentive to provide insufficient quality. Therefore can

53
In this case it will lead to a drop in trading frequency (which the data of the experiment suggest),
or a theoretical solution of high efficiency may be given.

The conclusions that Kerschbaumer et al (2015) draw from the experiment are that verifiability is
insufficient in a market with heterogeneous social preferences to increase market efficiency. In
contrast, liability is a powerful tool for increasing market efficiency that is also robust against
heterogeneous social preferences.

The effect of competition between sellers is examined in Dulleck et al (2011). It is claimed that
competition in the market for trustworthy goods does not have to lead, prima facie, to better market
results. On the one hand, it is to be expected that more competition will lead to lower prices, more
trading will take place and thus market efficiency will be increased. On the other hand, competition can
also increase the incentive to disadvantage buyers.

In the same study by Dulleck et al (2011) that examined the effects of liability and verifiability,
buyers were sometimes able to choose between several sellers. Thus, from the seller's point of
view, there was an incentive to undercut the prices of the competitors. The result was that the
trading frequency in the reference group increased due to massive competition. In concrete
terms, this means that in the reference group without competition, the buyer decided to interact
with the seller in 45% of the cases. In contrast, buyers in the reference group with competition
chose to interact with the seller 73% of the time. Another interesting result is that the average
price in the reference group with competition was about 22% lower and the trading frequency was
significantly higher than in the reference group without competition. In addition, if there is neither
verifiability nor liability, efficiency is not increased by competition, in particular by the fact that
sellers have an incentive to under-treat. If liability or verifiability are given in addition to
competition, the average effect of competition on efficiency is positive, whereby it is only
statistically significant in the case of verifiability.

In a field experiment, Rasch and Weibel (2018) examine the market for vehicle repairs to
determine whether competition and reputation play a role in overcharge. It is assumed that there
is liability. One assumption of the model is that the diagnostic costs depend on how many experts
are in the market. This makes it more attractive for consumers to get a second diagnosis of the
problem. This has the effect that if an expensive service is recommended, consumers have a
higher incentive to obtain a second diagnosis. As a result, experts have fewer incentives to
disadvantage the consumer in the sense of overcharge.

54
6.1.4 Empirical literature on the welfare effects of platform facilitators
Economic theory is based on the assumption that in the traditional taxi market, the problems of
trust in connection with asymmetrical information result in losses in consumer surplus, which can
be reduced by regulation. With the emergence of new technologies that can contribute to solving
the problem of trust, the question arises to what extent their application (which until now in most
countries was not tied to a taxi tariff) influences pensions (especially consumer surplus). In the
following section, empirical literature on the welfare effects of platform intermediaries, whose
business model consists in the application of these new technologies in the taxi market, is
analyzed.

Lam et al. (2020) use detailed data on the taxi and platform brokerage market in New York City
and show that consumers experience significant welfare gains from platform brokers. They use
data on (dynamic) prices and waiting times at route and time levels and compare traditional taxis
with the platform brokers UBER and Lyft as well as with public transport in a so-called "discrete
choice" demand model. The welfare gains generated by platform intermediaries are likely to be
greatest in remote areas, which tend to be seen as underserved by taxis. A decomposition analysis
shows that 64% of the profit made by platform intermediaries is due to their dynamic pricing
model, which enables shorter waiting times. Your results suggest

Shapiro (2018) estimates a demand model in which UBER and taxis in New York City compete for
consumers and finds heterogeneously distributed advantages for UBER users. Similar to Lam and Liu
(2017) in his model, consumers come from remote, generally underserved areas. According to
Shapiro, the fact that users experience welfare gains even in areas with very extensive substitution
options indicates that platform intermediaries also create efficiencies apart from the matching
technology, for example through the lower regulatory burden that is placed on them.

Ming et al. (2019) explore the welfare that platform facilitators and traditional taxis generate in
China. They use comprehensive data (e.g. price, waiting time, information about the driver,
weather and air pollution data, etc.) from the Didi Chuxing platform and the traditional taxi market
in Beijing. They show that the surge pricing model used by platforms has a positive effect on both
consumers and drivers. However, your estimates also suggest that surge-pricing consumers
experience negative welfare effects at peak times.

55
Castillo (2019) uses extensive information on UBER users and drivers to study the welfare effects of
surge pricing in Houston, USA. He estimates the demand question function with the help of the
trips requested and the trips actually made by UBER users and finds the balance on the market by
incorporating supply, demand and matching technology into his model. His empirical study
suggests that surge pricing actually generates greater efficiencies, as he shows that overall
welfare in the market increases by around 3.5% as a result of surge pricing. This increase mainly
benefits UBER users, while pensions for drivers (in the UBERPop model) decrease slightly.

6.1.5 Conclusion on the taxi market as a trust goods market

On the basis of the theoretical model by Dulleck and Kerschbaumer (2006), it emerges that the problem of
trustworthy goods in the taxi market manifests itself through overcharge and overtreatment. This means
that the nature of the taxi service provides incentives for taxi drivers on the one hand to charge a higher
price and on the other hand to drive a longer distance than necessary.

Balafoutas et al (2013) show that the incentives to disadvantage consumers that arise from the
nature of trustworthy goods are actually exploited to the detriment of consumers in practice. It
follows that taxi regulation - which restricts competition - does not always work in practice. On the
other hand, the study also shows that these incentives are not exploited in many cases, although
there are clear incentives to discriminate. The relevance of liability and verifiability are examined in
Kerschbaumer et al (2015). The study shows that liability has a strong effect, although verifiability
does not seem to play a major role. For the taxi market, liability is already given by the fact that
consumers only pay when they have arrived at the desired destination. Rasch and Weibel (2018)
show that competition, especially a high number of providers, reduces the incentives for
overcharge. For the taxi market, this means that when there are more taxis on the street, it is
easier for consumers to get a second offer. However, this is only relevant if taxi drivers can
determine the fare.

The regulation of the taxi market aims in part to prevent overcharge and overtreatment. For
example, a fixed taxi tariff in combination with a taximeter is intended to protect consumers from
unfair treatment and high prices. New technologies, such as fare estimation, replicate regulatory
mechanisms in a market-based manner. However, certain technological solutions, as in the case of
the reputation system, which to a certain extent replicates qualitative regulation, can create
incentives that have a negative effect on the effectiveness and subsequently on the credibility of
the technological solution. The use of new technologies, if properly designed, can nevertheless
contribute to reducing the trust issues to a reliable and
56
consistent way to address. The regulation on the traditional taxi market (i.e. without technological
aids) is, however, economically understandable. Empirical studies show that regulatory measures,
such as a fixed tariff, do not solve the problems in innovative markets in the most efficient way.
Flexible pricing models and the possibility of control generated by apps therefore generate
welfare gains in the taxi market. New technologies thus have the potential to solve some aspects
of the problems that exist with trust goods. The consideration of new technologies makes the
differentiated adaptation of existing measures necessary.

6.2 Possible types of regulation from a competitive economic point of view

In the following, further economic literature on the subject of taxi market regulation is described and the
nature of the taxi market is explained from an economic point of view. After that, price regulation,
quantitative and qualitative regulation of the taxi market will be discussed and, finally, different approaches
to taxi market regulation in European member states will be compared. In addition, three case studies on
European taxi markets will be presented.

6.2.1 Theoretical literature

Moore and Balaker (2006) have systematically analyzed the economic literature on taxi market
regulation. They found 28 articles that evaluate various economic aspects of taxi market deregulation.
These include case studies (8), theoretical articles and economic models of the taxi market
(18) and empirical evaluations (2).

The majority of economists come to the conclusion that the positive effects of the deregulation of the
taxi market predominate. In 19 of the 28 articles, deregulation was rated positively, two reported mixed
results and seven found negative effects of deregulation in the taxi market.

The literature that evaluates deregulation measures positively includes case studies, theoretical
models and empirical evaluations and is thus more diversified than articles that find negative
effects (see Beesley and Glaister 1983; Gaunt 1996; Frankena and Pautler 1986; Williams 1980;
Moore and Rose 1998 ). These negative effects of deregulation are largely based on theoretical
models and simulations, which in turn are based on strong assumptions (with regard to
transaction costs and information asymmetries).

Moore and Balaker (2006) summarize the arguments of the economic literature as follows: Quantitative
regulation of the taxi market, i.e. a limitation of the number of taxis in the market, can only
57
lead to lower supply and higher prices (Kitch et al, 1971). It can be assumed that prices in a
competitive market are lower than under regulation (Eckert, 1970). Beesley (1979) argues that the
lower prices result from adjustments to demand and supply in the labor market for taxi drivers,
which in turn are influenced by competition in the actual taxi market. Low sunk costs39 for market
entry and moderate fixed costs, which according to Hackner and Nyberg (1995) are characteristic
of the taxi market, suggest that the taxi market is being deregulated. In addition, it is extremely
complicated to regulate the taxi market efficiently, since a large amount of information is required,
to which the regulatory authorities usually do not have access. That's why you can'tgreat facie
assume that the regulation of the taxi market leads to an improvement in welfare. Ultimately, the
goal should be to have a completely liberalized taxi market (Lephardt, Bast, 1985).

In favor of regulation from a purely economic perspective, the fact that transaction costs can be
significantly reduced (Gallick, Sisk, 1987) and that the distortion of competition caused by
regulation is relatively small compared to the damage caused by free competition in the taxi
market40 be able.

6.2.2 The taxi and rental car market

According to the late chairman of the Social Democratic Business Association Vienna, taxi and
rental car companies offer the same service, namely the transport of one or more people from
place A to B.41 From an economic perspective, too, the transport services of taxis and rental cars do
not differ per se. From an economic point of view, however, there are major differences for
consumers with regard to the transparency of the offer, depending on the type of booking.

The Austrian legislator uniformly regulates taxi rides in the amendment to the Occasional Traffic
Act42. This is in stark contrast to the consensus in economic literature, which clearly distinguishes
between three distinct segments of the taxi market (cf. Bekken (2003), OECD (2007)). For this
reason, the economic nature of the taxi market will first be examined in more detail and then

39 Sunk costs are a special type of cost. These are irreversible and cannot be taken again. In the economic literature, these
types of costs are often an example of barriers to entry into a market.
40 For example, through local, temporary monopoly positions in individual taxi market segments. See section “Taxi

Market”.
41 https://www.ots.at/presseaussendung/OTS_20190515_OTS0132/wiener-taxi-obmann-zu-gelahrungsverkehrsgesetz-

wobleibt-die-versitzte-novelle
42 It should be noted that journeys made by rental cars are regulated differently from taxi journeys.

58
explains why, from an economic point of view, a distinction is made between three segments in terms of the product

market.

Depending on the type of booking, the problem of trustworthy goods and the transparency of
offers are different. A taxi ride can usually be booked in three different ways: (i) by phone or
mobile phone application in advance ("pre-booked"), (ii) waving in the street ("street-hail"), and (iii)
at the taxi stand. Rental cars in Austria are only allowed to drive in the pre-booked segment and
are therefore excluded from the street-hail segment and the taxi stand by regulation.

Consumers in the pre-booked segment have the opportunity to evaluate relevant information in
advance and make their purchase decision based on this. For example, consumers can compare
prices, fleets and availability among a large number of providers, so that in principle conditions for
effective competition are given (cf. OECD, 2007). In addition, taxis face additional competition from
rental car companies in the pre-booked segment.

In contrast, consumers in the street-hail segment are in a comparatively poor position to make an
informed purchase decision. When consumers stop a taxi on the street, neither the waiting time
for the next taxi, the service quality nor the price at the time of the purchase decision are known
with certainty. In addition, consumers are unable to compare multiple offers. As soon as
consumers get the first offer, it must either be accepted or rejected. It is not possible to “keep” the
first offer and obtain a second one.

The taxi stand is viewed as potentially problematic in the economic literature if there is a legal
requirement that consumers are only allowed to get into the first taxi in the queue. In this case,
the first taxi at the taxi stand has considerable market power vis-à-vis the consumer, since the
consumer does not have the option of booking another taxi. Thus, the consumer only has a single
provider to choose from, which creates a quasi-monopoly that could, for example, offer incentives
for taxi drivers to charge higher prices. However, there is no such requirement in, for example, the
Vienna Taxi-BO.

At the objective product level, due to the intrinsic information asymmetries, especially with regard
to the street-hail segment, a certain regulation of the taxi market is necessary. But that does not
mean that every form of regulation is justified. Efficient regulation must leave enough room for
competition in order to develop the positive effects.

59