The Competition Council found that the taxi operators Buda Kft, City Taxi Szövetkezet, Főtaxi Rt, Taxi-2000 Kft, Est Taxi Kft, 6x6 Taxi Kft, Budapest Taxi Kft and Rádió Taxi Ász Kft infringed the Competition Act when they have fixed the minimum charge of the taxi services at Budapest therefore imposed a total fine of HUF 29.8 million.
The undertakings concerned and the facts
The Office of Economic Competition (GVH) in August 2002 initiated proceedings against the 8 largest taxi operators in Budapest for alleged fixing of prices. Except Est Taxi who is a taxi operator in the classical mean of this word, all the other operators are actually taxi service agents, who organise transport services for independent car owners (taxi drivers) according to their contractual relationship. Est taxi has its own fleet of taxis, all the drivers are employees of the company. The other companies pursue only organisational activities, the drivers have individual contracts with it, and some of them franchise agreements.
The revenue generated by the transport services appears at the drivers, however prices are determined by the taxi companies taking into account of course the opinion of the drivers as well. All the companies have "ethic committees", composed of the drivers, with the aim of deciding on ethic procedures and facilitating the communication between the companies and the drivers. These committees can make proposals on potential price increases. The final decision is adopted by companies itself.
The affected geographical area is Budapest, notwithstanding the fact that certain undertakings pursue their services to and from the suburban regions of the capital too. The taxi market of Budapest is characterised with a massive oversupply, there are approximately 6000 drivers. Just to make a comparison, in Vienna, a city of the same size and population, only 3400 drivers operate.
Market demand stagnates for years, the only appreciable trend is the permanently decreasing average distance of the transport services. Customers decide upon the price and the quality of the service. The services of the individual companies does not differ from each other, they are perfect substitutes.
Concerning the legal regulation of the market the investigation showed that the municipality of Budapest has the right to determine the individual elements of the taxi fares, their ratio to each other and the maximum price of them. According to the regulation the taxi fare consists 3 different price-elements. The minimum charge is to be paid at the begin of the service, irrespective of the distance and duration of the journey. The other two types of charge are proportionate to the distance (km charge) and the duration (waiting charge). Latter is applicable whenever the speed of the car drops below 15 km/h.
In 2001 and 2002 the undertakings concerned raised their minimum charges to the allowed maximum in almost the same period. Furthermore the gap between the most expensive and the cheapest company`s km charge diminished significantly last year. On the drivers` meetings the unification of the tariff and discount system came up as well.
Price increase in 2001
At the premise of City Taxi, the OEC found documents, which said that in 2002 those should begin with the raising who "despite the agreement failed to do so in 2001". According to Budapest Taxi on the "Tariff Cup", a five-man football tournament organised by the taxi drivers, an agreement was reached concerning the price increase. However 6x6 Taxi, Rádió Taxi, Taxi 2000 and Buda Taxi did not participate on this tournament. Some of the companies stated that they had been put under pressure to carry out the "appropriate" price increase.
Price increase in 2002
In early 2002 there were several bi- and multilateral negotiations where parties expressed the need for an increase, preferably to the highest possible level, which would be HUF 300. In March 2002 the "Tariff Cup" was organised again with negotiations on prices. Subsequently City Taxi consulted those companies, which did not enter the tournament.
City Taxi, Taxi 2000 and Főtaxi denied that there has been an agreement concerning prices. Moreover in their opinion in the case of maximum prices determined by a public authority, cartel agreements are excluded ab ovo. In alternative they asked for an individual exemption.
Legal assessment by the Competition Council
Pursuant Article 11 of the Competition Act agreements or concerted practices between undertakings and decisions by social organisations of undertakings, public corporations, associations or other similar organisations (hereinafter referred to together as `agreements`), which have as their object or potential or actual effect the prevention, restriction or distortion of competition, shall be prohibited.
The undertakings concerned are independent entities pursuing economic activities in the terms of the Competition Act. According to the Competition Council it was justified to initiate the proceedings against the companies itself and not against the approximately 4400 drivers.
The investigation found written evidence that the parties has been agreed on the necessity for prices to approach the allowed maximum and in order to do this they have to raise prices uniformly.
It is an infringement of the Competition Act if competitors negotiate on the necessity of a price increase, they disclose to each other this intention, they treat it as a common objective, especially if subsequently they raise their prices uniformly. Should this conduct not qualify as an agreement, it will be definitely handled as a concerted practice. In the latter case two or more undertakings consciously cooperate, without having concluded an agreement, for the sake of or with the effect of lessening the competitive pressure. Even a contact with the aim or effect of influencing to proposed behaviour of competitors in the future is enough for an infringement. In this way they exclude or substantially reduce the uncertainty inherent to effective competition.
The determination of the maximum prices by the municipality cannot be an excuse for the undertakings, because it only fixes the maximum prices, however efficient companies can take an advantage by using lower prices than the others. The regulation leaves enough space for price competition.
The individual exemption was not possible given the fact that the parties have not produced any evidence concerning the benefits of this price-fixing agreement. The uniformly applied increased prices are not automatically followed by an increase in the level of quality. The only beneficiaries of the contested behaviour are the taxi companies and the drivers, consumers do not get a fair share, on the contrary they will be harmed. For an agreement to be exempted, all the 4 conditions of Article 17 has to be fulfilled, consequently if the agreement fails in one category the Competition Council does not have to proceed with considering the other three.
The Competition Council established that the undertakings infringed the Competition Act by fixing the minimum charge for taxi transport services, therefore imposed fines from HUF 300 000 to HUF 9 600 000. In considering the fines the Competition Council took into account the following arguments.
Price-fixing is one of the most serious anticompetitive behaviours, especially on a market where price competition has a significant role. On the other hand the parties fixed only the minimum charges therefore the final prices could have remain somewhat different. Taxi services are not regarded by the Competition Council as essential, there are no effects on other product markets, consequently the actual effect on competition is not significant. The fact that the parties were aware of the importance of prices in the competition on the taxi market, furthermore they should have known the illegal nature of their conduct was considered as an aggravating circumstance. Finally the price regulation of the municipality was acknowledged as a mitigating condition.
April 19, 2003. Budapest