Abstract:
In many developing countries and in some small cities in many developed
countries, we find taxicabs without meters. These taxicab drivers sometimes form a cartel
to avoid competition among themselves. They stand in a queue serially one by one. Only
the first driver in the queue can pick up a passenger. The second driver will wait until the
first driver leaves the queue. That is, these taxicab operators offer their services serially
one by one. They are free to quote any price for a trip they want and can wait as long as
they want to get an acceptable passenger. But if they wait, they incur a waiting cost. If a
driver quotes a price and the passenger does not accept it and leaves the market or waits
for the next cab, then the driver has to wait to get another passenger and as a result, his
waiting cost increases. Such a cartel can be best described as a Serial Cartel. A serial
cartel can be of two types on the basis of its continuity: (1) Discontinuous Serial Cartel,
and (2) Continuous Serial Cartel. Discontinuous serial cartels are formed where demand
is temporary. On the other hand, continuous serial cartels are formed where demand is
permanent. These serial cartels have many features which are not present in other forms
of cartels available in the existing literature. This paper presents two models of serial
cartels of taxicab services market ⎯ one is a Discontinuous Serial Cartel Model, and the
other one is a Continuous Serial Cartel Model. The two models are based on some
plausible assumptions and two hypotheses about the willingness of passengers to pay for
taxicab services. The models use differentiable negative exponential probability
distribution functions to measure the willingness of the passengers. It is found that the
equilibrium price, supply function, optimal size of a serial cartel, entry decision of a
driver, and welfare effects of these serial cartels are totally different from the basic
features of the centralized and market sharing cartels.
