CHAPTER 11 Costing and pricing in an entity 485REALITY CHECKTaxi fees set to fall after ACCC action against Cabcharge
Taxi card processing fees are likely to fall with Cabcharge now allowing other in-taxi payment terminals
to process its cards.
The move comes in a court enforceable undertaking to the Australian Competition and Consumer
Commission (ACCC) and resolves a long-running legal battle by the regulator to introduce competition
into the taxi card processing sector.
Cabcharge originally had a monopoly on the industry, and charged a processing fee that was 10 per
cent of the taxi fare.
Some states have passed legislation limiting that fee to 5 per cent of the fare, however the ACCC’s
chairman Rod Sims believes that fares could fall further with more competition.
‘We’d hope that when you move from what has been a traditional monopoly by Cabcharge to where
you’ve got competition for these processing machines that you will get charges reflecting normal retail
levels,’ he said.
In most shops, a typical credit card surcharge is around 1–2 per cent, however Mr Sims did not
express a view that taxi card payment surcharges would fall to those levels.
The undertaking by Cabcharge is to allow other terminal operators to be able to process payments
made using Cabcharge cards, which are widely used by many medium and large businesses and public
agencies.
‘All cabs have got a Cabcharge terminal because only that Cabcharge terminal could process all
forms of payment,’ explained Mr Sims.
‘Now that other terminals can also process Cabcharge payments, they can also cover all forms of
payment, and so taxi drivers now may be able to at least have competition between which terminal they
want in their cab and that competition we think should see a reduction in fares.’
Many taxis now have two terminals, a Cabcharge one and a rival terminal for processing credit cards,
however soon that second terminal should be able to process all forms of card-based payment.
Cabcharge shares were down 2.9 per cent to $3.73, although the broader market was down around
2.2 per cent.
Cabcharge was forced to pay $15 million in penalties and costs in 2010 after the ACCC’s initial action
against it for refusing to engage with certain firms and engaging in predatory pricing.
Source: Janda, M 2015, ‘Taxi fees set to fall after ACCC action against Cabcharge’, ABC News, 29 June, http://www.abc.net.
au/news/2015-06-29/cabcharge-fees-likely-to-fall-after-accc-action/6581500.Another important consideration is short-run pricing compared with long-run pricing. In chapter 10
we looked at whether or not an entity should accept a special order. In this short-run decision, we were
able to ignore fixed costs as the level of expenditure would not change in the short term, and there-
fore our focus was on variable costs in the decision process. We determined that the minimum price in
situations where there was spare capacity was the variable cost. At this pricing level the entity would
break even on the special order. However, is this a suitable pricing practice long term? The answer is
no, as in the long run all products should contribute towards fixed costs and profits and the price should
incorporate a margin to cover such contributions.