Jon Steinberg » Why All the Taxis Are Always Late

In many markets, coordinated poor service by multiple providers
results in the short term profit maximizing strategy.

I’ve taken a 6am Monday morning train into the city 3 out of the past
4 weekends. This allows for great Sunday nights will Jill, Edie, and
our new baby Cooper; and I’m an early to bed early to rise kind of guy
so waking at 5am-ish is no issue.

However, this requires taking a taxi. All three times the taxis have
been 10 to 15 minutes late. Today I used an earlier than needed pickup
time to ensure I arrived in time for the train. The taxi was 15
minutes late.

When I commented on this to the dispatcher and driver, they were
unapologetic claiming the guy before me was late. They went so far as
to say “there’s nothing they could do.”

From an operations standpoint the solution is simple: more taxis or
fewer bookings. What they should have said is that the current setup
is more profitable, and that customer dissatisfaction is unlikely to
harm the business. Taxis are not a long lifetime customer value
business.

From the three services I’ve used, the industry in East Hampton
appears in coordination to abide by these principles. No one respects
pickup times, so everyone can profit maximize at lower service levels.

Such tacit coordinations in fragmented industries would be very
interesting were they not so infuriating.

The only risk is that a vicious cycle occurs. More and more people
like me give false early pickup times and on the rare occasion the
taxi arrives at the appointed time, I’m not ready resulting in
backups. Perhaps that was the cause of my delay today.

The opportunity here is for a higher service, higher price provider:
East Hampton On-Time Taxi. It could probably charge a 50% premium
justifying fewer bookings.

Either way, in frustration there are always learnings and logic.
Things are seldom the way they are because there is “nothing to be
done.”

Especially when it comes to being late and poor service, active choice
is almost always at play.

birsic

Very cool that you turned this type of experience into a useful thought exercise. I’ve had a similar line of thinking while waiting for delayed flights and, as someone who’s first brush with business was through a classical economic lens, I’ve never been quite satisfied with the assumption that a higher service, higher price provider would run more/as profitably and it’s simply that no one has tried it / thought of it. With relatively low capital and skill set requirements, profit opportunities in the taxi market should clear (so much as any market does, in the long-term, etc). Air travel is not much different on that front. My intuition for the airlines, and I suspect this may be the same in the taxi business, is that there are too many factors outside of the vendor’s control and their customers don’t / can’t differentiate between internal and external causes. For example, you pay the 50% premium for a taxi and yet, because of things outside of the vendor’s control (traffic/weather/mechanical malfunction), the taxi is still 15 mins late. Now clearly this would happen less with fewer taxis/flights booked, but I suspect the inability to control the user experience / avoid these types of experiences makes a significant premium difficult to maintain. Another theory is that people are poor at assessing value / risk while planning (overvalue price, undervalue time). I’m sure others have better theories, and I’d love to hear them, because the idea that there’s an unexploited opportunity here, as intuitive as that opportunity seems to me, strikes me as less likely than that we’re missing something at play here.
vkw

One solution is to call all the cab companies and give them the same pick up time. Whoever shows up first to pick you up wins your business. It’s not the nicest of solutions, but in a broken system of trust it’s one way to do things. It works for one-time play in a neighborhood known to not honor pick up times.Of course, over time or many plays they will know that the person at a particular address is unreliable and not to bother going to pick you up or putting you at the lowest of priorities (assuming you are starting at a single-home residential address). That said, I don’t see why there can’t be a reputation-based system to keep the cab drivers in check. Essentially, you’d be able to report to the local municipality that the cab driver was late and after so many reports, they lose their license, medallion, or whatever it is they need to operate. Now with GPS, it’d be very easy to ensure fairness. This method may lead cab drivers to ditch fares who are running late if they have another one waiting but then at least all the players in the system are kept honest.Regardless, it is very interesting to think through how you can change the equilibrium of a system. I’d be curious to know how you’ll ultimately solve this problem.
David Riffer

In most parts of the world taxi fares are regulated. Are they regulated in the Hamptons?

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