This paper studies pricing and capacity decisions in markets for phone-ordered taxicabs. Firms first choose capacities and then compete in prices. As firm demand increases, so does waiting time. This dampens competition and makes prices too high from the social point of view. Efficiency improves if firms choose large capacities. In a two-firm setting, equilibrium capacities are shown to be larger if both firms maximise total profits than if they maximise profits per cab.

Deregulation of taxicabs in several US cities has not produced the expected benefits. The authors analyse the reasons for this failure, and make suggestions for future policy.

There are economies of scale for very small taxicab firms, but over 75,000 trips per year average costs increase, so the curve is U-shaped.