Price elasticity in HK Taxi industry

The issue of HK taxi pricing is one of the most interesting cases in microeconomic problems. It is one of those that would deserve a Cheung Ng-sheung style analysis like he did for the theatre pricing.

The HK government, more than 2 years after my proposal of tiering pricing, finally implemented the price rationalization. However, the timing is very bad, amidst the economic recession. Bureaucracy has made poorly timed policy inevitably in many goverments, HK is of no exception.

The new pricing involves a 7% rise in short distance (i.e.about 10km), which represents probably 65-70% of the incomes for taxi drivers. So the net effect is a 5% hike in average price.

Early reports claimed that total revenue decreased by about 20%, which I think is exxagerated (and partial data plus overshoot/overreact by passengers), more likely though it would be a 10% decrease, if I can extrapolate from the very limited data points in my previous post -- which is bad enough for the taxi drivers, epecially this incremental 10% are mostly net incomes as the fixed costs such as rent and time are constant.

In short, the pricing change, if implemented a year ago while the economic was robust, would have been welcomed. The new scheme, unsatisfactory as it is, is stil way more "rational" than the old one, although I would still prefer a more continuous change in price per km.

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