Competition and regulation in the taxi industry

A simple model of the taxi industry suggests that deregulation of fares and entry may not be optimal. The conditions of competition do not hold in the industry, even approximately. A model of search, where drivers and riders search for each other, is presented for the cruising-taxi market. This indicates that equilibrium of a deregulated industry does not exist. Price regulation is essential, and entry regulation may be useful. In addition, viewing the medallion as a bond for appropriate performance provides another possible rationale for regulation.