EQUILIBRIUM CHARACTERISTICS OF A MARKET WITH PROBLEMS OF COORDINATION BETWEEN SUPPLY AND DEMAND: THE CASE OF URBAN TAXIS

This paper develops a micro-economic model for the analysis of the market of cruising taxi services. The model considers as a special characteristic the coordination problem between demand and supply that this market presents. It is shown that the elasticity of demand plays an important role in the determination of market equilibrium conditions. If this elasticity is higher than unity, free competition conditions will produce an efficient long run equilibrium. Nevertheless, if elasticity is lower than or equal to unity, the free operation of the market forces could lead to very inefficient situations, from the social point of view. (Author/TRRL)