Procopé & Hornborg Competition blog: Finnish taxi service market under FCCA's magnifying glass
25.02.2019 | By Lotta Uusitalo
The opening of the taxi service market to competition on 1st of July 2018 has changed the taxi service market in one night. As a consequence, the market is facing the full-blown application of competition law and is currently closely scrutinized by the Finnish Competition and Consumer Authority (FCCA).
Notably, prior to the opening of the market, the FCCA published guidelines on competition policy enforcement on the taxi service market and considered it necessary to update the guidelines in February 2019. The FCCA’s guidelines remind that it is not the purpose of competition law to prevent new and innovative services that benefit consumers from entering the market. The FCCA shall, however, intervene where competition restraints have adverse effects on consumers, restrict competition and prevent the market from opening up.
Generally, in the taxi service market, there are two main actors: independent taxi drivers or taxi companies on one hand and taxi dispatch centers on the other. Traditionally, taxi dispatch centers in Finland have consisted of competing taxi service providers which co-operate through the dispatch centers. Any agreements that these independent taxi service providers conclude with each other or through the taxi dispatch center are in principle agreements concluded between competitors. Competition legislation generally prohibits co-operation between competitors that restrict competition and especially such practices as price fixing, market sharing and collusive tendering practices. However, besides the fact that co-operation between competitors does not always restrict competition, it is also possible that although the co-operation restricts competition to some extent, it has efficiency justifications i.e. it enhances the overall functioning of the market and ultimately benefits the consumer. And to service the consumer in the best way possible, taxi service providers usually need to co-operate with each other.
Setting a price, including a maximum price, is co-operation that is generally prohibited between competitors. According to the FCCA’s updated guidelines setting a maximum price may, however, be allowed in exceptional cases, if it is proven that 1) the maximum price benefits consumers and cooperation is necessary to achieve this benefit; 2) it is actually possible for each company to offer services at a price that is lower than the maximum price and 3) the maximum price does not cause the prices of competing companies to become standardized in practice in a way that is disadvantageous to consumers. Moreover, in the updated guidelines the FCCA considers that setting maximum prices in the taxi service market could benefit the consumers presupposing that the maximum price applies to all rides offered under the same trademark or brand – such as the label provided by one dispatch center.
In the guidelines the FCCA emphasizes that agreeing on working schedules among competing drivers operating under a dispatch center is in principle prohibited co-operation. Nevertheless, it is possible in some exceptional cases to agree on working schedules between competitors if companies can show benefits for consumers and its necessity. As an example of a possibly permitted behavior the FCCA mentions agreeing on working schedules during the off-peak hours if there would not otherwise be enough drivers/cars and provided that every driver, including the ones not in shift, can take rides even if they are not scheduled to be on duty.
The FCCA’s guidelines give some specific guidance to market operators, but basically general competition law and policy enforcement apply. The FCCA is going to intervene with detected problems, including cases where dominant dispatch centers abuse their position and hinder competition. Ultimately, the FCCA may require a practice to be stopped completely or take the case to the Market Court.
So basically, in Finland, the market operators must be able to prove efficiencies in any collusive behavior, although there will probably be a time for a learning curve for the less intrusive market behavior. A lot of business is done by interaction between the market operators, a lot of it securing efficient service level on the market. It is clear, that serious breaches of competition law must be eliminated but there are questions that are linked with effective functioning of the taxi service market and they raise the stakes involved in a balanced competition policy enforcement.
In comparison to Finland, in Sweden there are two sets of legal exemptions, in law and by block exemption for the taxi industry. The first exemption is incorporated in the Swedish Competition Act (konkurrenslag 2008:579) and requires that the cooperation is needed to meet the public interest in having access to taxi services. The second exemption is a block exemption regulation for the taxi industry which allows certain cooperation between competitors if the cooperating taxi companies account for no more than 35% of the market (lag om gruppundantag för konkurrensbegränsande avtal om viss taxisamverkan 2008/580). Would the Swedish model provide more legal certainty for the market operators that mainly consist of small and medium sized companies, (emphasis on the former)?
FCCA’s guidelines at: Focal points of competition policy enforcement on the taxi service market
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