Exhibit A of what happens when the government gets too involved in "regulation" should be the taxi system in just about any major city. For some reason, taxis are considered a "utility." This leads to spectacles like the Public Utilities Commission keeping fares too low when gas prices are high, and then raising fares after gas has fallen again. While Denver has avoided the sort of corruption that has led to drivers using medallions to stop bullets in places like New York, we still don't actually get the benefits of competition.
I completely understand the need for a city to maintain certain minimum standards in catering to its guests. There's probably no quicker way to lose convention business that for word to get around that the driver didn't even charge the rats for sharing the ride. But there's a perfectly good way to achieve safety and cleanliness while still allowing prices and supply to find their natural levels.
License fees, rather than securing a spot in an artificially-limited supply chain, could pay for inspections. In theory, there's no limit as to how many cabs could operate, but of course, there's a point where drivers couldn't find enough fares to stay in business. Virginia has just such an inspection system for private, non-commercial cars.
Price-signalling would be a little more difficult, but there's no reason why a taxi couldn't have its fares printed on the side of the cab, or on little cards inside the airport. Even now, cabbies are pretty good at estimating fares given a destination. A company that maintained higher standard or had extra perks, like in-car wifi, could charge more, while a company that didn't charge enough to cover its maintenance costs would quickly be put out of business by inspections.
There is a risk of sort of a Gresham's Law of cabs here, where the line could get clogged by too-expensive cabs that couldn't find fares. if a cop can wander up and down the line telling me that I can't wait to pick someone up, they can make cabs circle the same way. They won't like burning the extra gas, and that's the point.
There's no question that fares for normal, run-of-the-mill rides would tend towards the same price, with very little variation. But that price would better-reflect market realities rather than trailing them, and it would also allow for some innovation in services without having to hire a limo.
