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Use dynamic instead of fixed taxi surcharges

Based on technological advances, we will be able to pinpoint the location of vehicles on our roads. (“LTA calls for tender to develop satellite-based ERP system”; Oct 2)

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Ronald Chan Wai Hong

Based on technological advances, we will be able to pinpoint the location of vehicles on our roads. (“LTA calls for tender to develop satellite-based ERP system”; Oct 2)

With this, we can induce a paradigm shift in taxi fares. Instead of a fixed but complicated schedule of surcharges, we should consider a dynamic scheme similar to the “surge pricing” used in some third-party booking applications.

Surcharges are intended to incentivise drivers to head towards areas with low taxi supply but high demand. As long as supply and demand can be measured, we can replace the complicated surcharges with a simple three-band structure. For example, two pieces of information could be required: The average number of taxis plying recently in an area within a fixed radius; and the number of taxi hires within the same area and time.

To ensure transparency, this data must be made available to anyone with a smartphone with a centralised data visualisation application or anyone near a taxi stand that displays the information on a dashboard.

In areas with a lot more taxis than recent hires, there would be no surcharge. In areas with far fewer taxis than recent hires, a predetermined premium would be imposed. In the middle band, with comparable supply and demand, a smaller surcharge would be imposed to maintain the status quo. The surcharges can thus vary with location and time, but only three flag-down fares would be possible islandwide. Firms can manage their drivers’ interests by suggesting pick-up locations based on predictive algorithms.

Regulators can manage commuters’ interests by monitoring the number and spread of active taxis and penalising errant companies trying to game the system.

More bands could be introduced to allow a finer variation in fares and account for far-flung locations, but the trade-off is a complicated surcharge schedule.

A tri-band structure could be easily shown on taxis, represented by one, two or three green dots instead of the electronic “TAXI” text, so the flag-down fare is transparent to passengers.

By combining localisation technology with dynamic pricing, we can make surcharges easier to understand, while continuing to incentivise drivers to manage supply and demand forces effectively.

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