South African Taxi Industry: Who gets hurt the most?

By Senior AAT Correspondent, Michael-James Currie

Currently, the South African Competition Commission is investigating Uber in relation to alleged anti-competitive practices. The crux of the complaint against Uber, which was brought by the SA Taxi Meter Association, is that Uber has engaged in predatory pricing in contravention of the South African Competition Act.

This is not the first complaint Uber has faced before the competition agencies. The authorities in the US, Kenya and India have all investigated the company for anti-competitive practices.

The confrontation between metered taxis and Uber culminated in a number of violent protests this year, to the extent that Uber drivers were reluctant to pick-up or drop-off passengers near certain popular venues so as to avoid physical conflict with metered taxi drivers.

Without engaging fully on the merits of the complaint brought against Uber, there are a number of important hurdles which a complainant needs to overcome in order to successfully prosecute a case of predatory pricing (this is one of the listed grounds in the Competition Act relating to abuse of dominance).

The author has previously, and exclusively for Africanantitrust, published a paper which comprehensively evaluates the Media24 case, which is the most recent case of predatory pricing successfully prosecuted by the Competition Commission before the Competition Tribunal.  The paper clearly sets out the challenges in formulating a predatory pricing case against a respondent and adducing sufficient evidence to prove such a case.

Apart from having to prove that Uber is in fact dominant in a particular market (which may be challenging considering Uber does not own any vehicles), and that Uber’s pricing amounted to predation (i.e. proving that the respondent supplied its services below its marginal cost or average variable cost), the Competition Tribunal will also have to be satisfied that the conduct does not have efficiency or pro-competitive effects which outweigh any anti-competitive effects.

It is in respect of the last point which, at least at face value, appears to be a major hurdle in respect of Uber’s complainants. Uber’s rapid success, not only in South Africa but across a multitude of jurisdictions, is largely as a result of providing customers with a new innovative, cost effective service. It appears to be the very essence and objectives of competition which resulted in Uber’s success, to the detriment of metered taxis.

As, Primerio director, Andreas Stargard stated in a previous article on africanantitrust:

The pro-competitive notion of innovation-plus-price competition is perhaps best understood by looking at the views of two leading antitrust agencies, the FTC and the European Commission.   Both have articulated simple and sound arguments for striking the right balance between regulatory limits for the protection of passengers, as well as allowing innovative technologies to enhance the competitive landscape and thereby increasing transportation options for riders.  In antitrust law, more options usually equal better outcomes.

In particular, Stargard points to the following statement made by the FTC in relation to a similar complaint brought against Uber in U.S, some three years ago:

Competition and consumer protection naturally complement and mutually reinforce each other, to the benefit of consumers. Consumers benefit from market competition, which creates incentives for producers to be innovative and responsive to consumer preferences with respect to price, quality, and other product and service characteristics. As the U.S. Supreme Court has recognized, the benefits of competition go beyond lower prices: ‘The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain – quality, service, safety, and durability – and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers.”

The net sum of the Uber analogy is that Uber is widely regarded as beneficial to consumers and until evidence comes to light which contradicts this, it is difficult to come to any other conclusion. John Oxenham notes that the Competition Commission of India, had this to say about the complaint against Uber:

the allegations made are opposed to the basic tenets of competition law.

“Inability of the existing players or new entrants to match the innovative technology or app developed by any player or the model created for operating in a particular industry cannot be said to be creating entry barriers in itself,”

While the South African Competition Commission has not yet pronounced on whether it will initiate a complaint against Uber, the complaint has brought into focus an industry which to date, has received very little attention from the competition authorities.

In this regard, we note that Mr David Lipton of the International Monetary Fund, recently stated that “Tariffs on poultry imports also came under fire because of their effect on poor consumers as did SA’s “taxi and bus cartels. This he said “prevented transport markets from competitiveness”. Mr Lipton highlighted the need for greater competitiveness within the South African markets and highlighted that regulatory requirements often served as a significant barrier to entry.

We note that in respect of the taxi industry, it is perhaps the under enforcement of regulatory provisions such as the Competition Act, which has an equally deleterious effect on competition.

It is regularly reported that the “taxi and bus” industry is riddled with collusive behaviour. In light of the fact that most of South Africa’s indigent are fully dependent on taxis for transportation in South Africa and spend a significant portion of their disposal income on taxi fees, this is an issue which needs to be addressed urgently by the competition agencies by acting “without fear, favour or prejudice”.

In this regard, the following extract from the daily maverick highlights the negative state of play which exists in the taxi industry:

With the birth of this industry also came problems, of course. South Africa was always bad at protecting lives and property, especially if you were black. In such an environment, it was little wonder that legitimate measures to protect their own property soon extended to underhanded and sometimes violent means to quash competition.

This, however, is not an argument against the taxi industry, but against a government that is unable to enforce laws that prevent intimidation and violence to protect the business interests of commercial cartels.

The iron-fisted rule of the taxi associations, the firm grip they have on routes, and the short shrift they give to rivals, is a troubling feature of the industry. It limits competition, which reduces capital investment and keeps prices fixed.

Passengers are well aware of this, and would gladly choose alternatives, if they’re perceived to be cheaper, faster or safer.

Unfortunately, instead of enforcing laws that would enable free-market competition to meet this desire, the state is heading the other way. It is building alternative public transport options, and pouring taxpayer billions into them.”

In Minister Ebrahim Patel’s budget speech in April 2016, the Minister, who in his opening remarks stated that “Economies are about people, not simply numbers and policies” went on to quote the following extract from a recent World Bank study on competition in South Africa:

In the case of four cartels in maize, wheat, poultry and pharmaceuticals – products which make up 15.6% of the consumption basket of the poorest 10 percent – conservative estimates indicate that around 200 000 people stood to be lifted above the poverty line by tackling cartel overcharges”.

Given that there are approximately 250 000 taxis on the road transporting approximately 15 million passengers per day, and that these passengers include those “within the poorest 10%”, it is surprising that, in light of the findings of the IMF, public transport, particularly insofar as taxis and buses is concerned, has not been identified by the Competition Commission as a “priority sector” nor investigated with the same gusto as that which corporate entities, to date, have received.

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