The Economics of Taxi Prices in Nigeria


Ok. I take cabs/taxis a lot in Abuja,Nigeria and they can easily burn your trouser- not a hole in your pocket-your whole trouser. It is bleeding expensive! I hear prices in Lagos & Port Harcourt are worse (sorry to you poor folks out there). The way it works here is; the taxi driver calls a price, you call something lower and you guys haggle it out till you reach a consensus or in economic terms, an equilibrium . (Only possible in Naija, cause we don’t have meters that accurately charge one on Mileage) It’s odd to see some taxis call N500($3.16) for a place, while others call N1000($6.32) for the same place. Twice the amount! And their cars are basically the same. Unlike places abroad where the cabs are relatively nice with a glaring TAXI on them, we only know Taxis in Nigeria because they’re broken down, scratched up, and panel-beaten up!

Anyways, I find it lazy to simply chuck down the arbitrary nature of taxi price to greed, so I’ve been thinking of possible price-influencing factors.  And after much taxi trips, I’ve come up with a number of variables that might contribute to the price a cab driver quotes.

 

“Oga, enter, I know that place na!” …*Doesn’t know the place*

 

Factors that could influence pricing:

  • Driver’s Knowledge of Destination: does the price go up or down if the driver has no real idea where you plan on going? He might charge a passenger more cause he feels he’ll be driving around a bit before he figures out the right destination. Also, he might charge more cause he’d prefer to overshoot in case the destination’s turns out to be far. Contrastingly, he might also charge less cause he assumes the destination is closer than it really is.
  • Passenger’s Knowledge of Destination: What about when the passenger has no idea where he’s going? Well. That’s obvious. Correlation would be high. Cab drivers love ignorant passengers.(I can sadly and shamefully attest to that.)
  • Amount of Traffic along route to destination: This definitely increases price. Nothing pisses those cabbies off like Traffic. (I once had one threaten to kick me out of the cab cause ‘we’ didn’t inform him how much traffic there would be! ) Apart from the no-one-fancies-traffic factor, there’s an economically sound reason for the price hike in areas with high traffic. Every minute a cab driver spends in traffic, he loses money because he loses a new customer. In areas with no traffic, he simply drops a passenger and picks up another in a few minutes. So he makes twice/thrice as much than he does sitting in traffic with a flat rate (originally-agreed-upon price). To account for this, the taxi driver hikes up his initial price.
  • Time of the day: This correlates a lot with traffic. Cab drivers tend to charge more around 4-5 pm. Basically, when work ends and there’s a lot of traffic. Same concept works everywhere else. Rush hour using some Metro/Trains in the U.S. means higher ticket prices. Late into the night, a cab driver is definitely charging more. This makes sense, no one really wants to be driving around at night facing those pesky Abuja policemen perching at every intersection.
  • Availability of other cabs in the immediate vicinity: The more cabs in one place, the better. Well..for the passenger. More supply obviously pushes down price: basic economics. (Once had a colleague go through all the cabbies in an area till he found the lowest price!)
  • Probability of Picking a New Customer at Passenger’s Destination: Prices are higher for destinations where the taxi driver is unlikely to get a new passenger after the current one has alighted. Again, this isn’t cause they’re greedy buggers; it actually has a financial justification. A taxi driver will use up the same amount of fuel driving back after he’s dropped a passenger-with or without picking up another. So if he doesn’t pick up a new passenger somewhere close to your drop zone, that’s a cost for him with no benefit. However, he makes money if he leaves with a new customer.
  • Popularity of Destination: means it’ll be well known. So Lower price quote? However, this is more complicated than it seems as it has multicollinearity issues. i.e other independent variables interacting way too much with each other. Popular destinations could mean traffic jams, availability of new customers, or type of passengers at the place. These factors all interact and muddle up each other.
  • Availability of Substitutes: Prices of taxis might be lower in areas where substitutes exist e.g. ‘Okada’ (Bikes) and ‘Kekenapep’ (Hard to explain if you haven’t seen one).
  • Look of the vehicle: well. Some cabbies charge more cause their cabs look nicer. Ha. Fair enough. Who wouldn’t want to be in a nice ride? (For those who can afford them, Silverbird Abuja has got them.)
  • Gender of the Passenger: Ok. This is proven. Girls ALWAYS get lower prices. Sucks for you if you’re a guy who needs cabs all the time. No idea if cabbies think charging a lower price increases their probability of getting the girl’s number. And yes, I’ve seen them ask for phone numbers. It could also be the beauty bias at work: more attractive people are more likely to receive help or be treated better. On the other hand, I’ve been informed that being a pretty girl can lead to a higher price. That makes more economic sense, as taxi drivers assume that attractive girls are more financially endowed. Apparently, prettier people are assumed to be happier and wealthier. Surprisingly, that same beauty bias has an equally negating effect. Moreover, if the girl’s with a guy, then the price’s certainly going up as cab drivers might assume the guy wouldn’t want to look cheap by bargaining too much.
  • Dressing of the Passenger:  This still ties in to the previous variable.  You dress nice, you pay high. At least that’s how I imagine a cabbie would think. Nicer dressing suggests a propensity and ability to pay more. It’s always necessary to remember that some individuals could be outliers. Some of these things just don’t seem to affect them.
  • Stubbornness of the Passenger: How much would a passenger’s stubbornness to agree to a given price affect the final price? Obviously, a passenger with a lack of stubbornness would pay any price called out, hence paying a high price. I wonder how one could measure that. Dummy variables? 1 for those who are stubborn, 0 for those who aren’t. Or a more incremental method. 1 for those who aren’t, 2 for those who are a bit, and 3 for those who really love to haggle. (Think we can group my Grandma in 3. I’d avoid going to the market with her if I could!) Would the second method give a more accurate correlation?
  • Area Where Cab gets Flagged Down ( influential area or not): taking a cab to or from Asokoro, Abuja (rich-man part of Abuja) tends to be more expensive cause they assume you live amongst the rich, so you can afford the high price. (good luck if you’re a ‘house-girl’ in such areas)
  • Amount of money already made by cab driver: does the cab driver charge more or less depending on how much he’s already made? Will his fat pocket spur him on to try and make more money or just chill on his price quotes?
  • Differing fuel prices might be another important factor. Go to NNPC and see people queue for fuel cause it’s relatively cheaper than that of other fuel stations. I do wonder if its effect becomes muted by its interaction with the other variables once the regression is done.
  • Other Factors: Amidst these might be other (possibly) negligible factors like how much Pounded yam he had for lunch, if his wife annoyed him in the morning, if he bashed his car the day before, if his engine is knocking, if the Police or VIO (Vehicle Inspector Officers…Mean buggers!) stopped him an hour ago and made him drop ‘something for the boys’. Fuel scarcity variable might also be left out cause it only happens once in a while.
  • The obviously really huge determinant of taxi price is  Distance. The farther the destination, the higher the fare. Next question: is it really about distance or the perception of distance? As I previously said, there’s lack of meters that accurately measures distance, so these cabbies essentially use their knowledge/memories to set their prices.

Conclusively, all of these complications exist due to what Economists describe as Information Asymmetry: both parties are not privy to the same information on the transaction. It also shows how our decisions-both rational and irrational-come into play in such uncertain situations. In places like Nigeria, this creates a lot more headache than necessary. I have a post out on this in the future.

Statistical Musing

I wonder how one could run an actual regression analysis using price as a dependent variable and the other factors as independent variables. How do we account for exogenous factors or errors in variables? Or account for multiple variables being highly correlated (Multicollinearity)? Might we have to convert some variables to their Logarithmic equivalent or multiply variables in order to create interaction variables? Who knows…accumulating the data for this would be quite a task.

NB: Thanks for reading such a long and hopefully not-too-boring article. Let me know in the comments if there are any other variables I’m missing. And please don’t forget to share this article, follow us, and bookmark us! There’s more coming soon! 😀

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  • Quite an interesting read. Not at all boring. Although u lost me for a bit back there talking about converting variables to logarithms or something like that. Great piece though. Kudos

  • abdulmahmud1

    Brilliant. Ended up laughing as you correlated (Collinearity again) to/with the economics of real life. I like the piece. Time the oga at the top fixes Abuja’s fares? Come to think of it, it’s a deregulated market with its neo-liberal economic benefits!

  • abdulmahmud1

    Brilliant. You made me laugh as you correlated (Collinearity again) economics to the real life. Damned, taxi fares are expensive that pockets bleed? The world is our pocket. Think of it: oga at the top can fix Abuja fares; but it is a deregulated market of one chance-that which our neo-liberal economists say can only take us out of the woods. Nice blog; will be visiting again!

    • Victor Ehikhamenor

      Oga Mahmud, if those that sleep in the palace are seeing ghosts, what about those who sleep in the shrine. You dey complain of Abuja cab fare? Abuja cab fare is fair compared to Lagos. I actually love taking cabs in Abuja just to feel the value of 200 or 300 naira again in Nigeria economics. If Abuja cab prices burn the writer’s trousers, he should not attempt taking one in Lagos because they burn more than cloth material, they go for your…enough said!

  • michelle

    Nice article.. Think of these Cab prices a lot but never thought of writing an article. This(yours) should be the first. Everyone’s bordered about all “the big stuff” but this is also an issue. Love the way you came up with your variables but don’t agree with your factor 8 and 9 especially here in Lagos. Girls pay higher prices and beautiful and well dressed girls pay even higher prices which to me is determined by your destination in most cases(high class/low class area). The best software to use will definately be E-view package.

  • Mahmud Sulaiman

    Nice piece, however, I’m not sure if you wrote this piece because of your love for economics or for naijanomics. It is pertinent to note and highlight that both terms are antonyms. Economics deals with rational behavior and interaction which makes it easier to analyze production, distribution and consumption. Naijacomics, on the other hand, deals with irrational behavior and interaction so much so that it is almost impossible to understand consumers’ behavior let alone apply some renowned economic theory.

    Again, this even isn’t about economics, its about we Nigerians and our penchant for irrational behavior. We forsake the easy and proven theories and formulate ours which are difficult unproven and surely unproductive. We call it ‘the nigerian way’. God help us.

  • Mahmud Sulaiman

    Kindly include my email in your distribution list for other articles.

  • I appreciate you for thinking about this and puting it into writing, I think its important that we study such seemingly minute stuffs and deduce the right answers and approach from our studies….. Do you think we can invent/create a ‘Cabometer’ for nigerian cabs such that we will consider all the above named factors(distance, trafic-time, time, speed of the cab etc) ?

    • Thanks a lot! I think we can simply adopt the system employed in the U.S. The Mileage tracker simply tracks by distance. There’s a unit price per unit distance and the price increases accordingly. The drawbacks to this in Nigeria is that a number of cab drivers might not know the way, and might drive all around. You’d end up paying more for their ineptitude. Second, they might know the way, but decide to use the longest way in order to maximize their revenue. Third, a lot of cabs in Nigeria are not exactly licensed under an established company, so getting them to adopt this method might be difficult. There are other reasons that make it hard for such a system to work in Nigeria. This country will need a lot of infrastructure and an organized system for things like this to function. Unfortunately, we aint even close. :/

      • emeka

        Very nice read. However,ur proposal of the mileage tracker will only work in cities like Abuja, I’m afraid. Here in Lagos, there’s almost no correlation between distance travelled and cost incurred (on gas), due to the highly erratic nature of traffic here. You can end up travelling a distance which should ordinarily take say 10mins in places like Abuja, for 2 hours. Hence, the mileage tracker may be a bit unfair to the cabbies. A more technical solution may be to have “fuel guage trackers” which will determine the cost to the cabbie of the distance covered + an agreed premium 🙂 . Impressive and interesting piece. Please send more of ur write-ups to emekachime1@gmail.com. will also follow u on twitter asap.

  • Victor Ehikhamenor

    Yes, a few important variable are missing here:
    1.) “Regular customer price – aka- Oga na you be that?”. If the passenger and the cabbie know each other, the price is significantly affected.
    2.) “Quick runs” – Oga send driver message and driver wants to make quick buck, this also affect the pricing.
    A hilariously serious piece.
    Thanks.

  • felix oluseun

    A very lovely piece. For anyone who lives in or visits Abuja frequently,
    you can’t help the smiles. The question that comes to mind
    however is: even if the government introduces mileage meter,will it help?
    Wouldn’t there be other ways of exploiting passengers?

    • Thanks a lot! There would certainly be loopholes.I explained it to another commenter, but I’ll repost it.
      The drawbacks to introducing mileage meters in Nigeria is that a number of cab drivers might not know the way, and might drive all around. You’d end up paying more for their ineptitude. Second, they might know the way, but decide to use the longest way in order to maximize their revenue. Third, a lot of cabs in Nigeria are not exactly licensed under an established company, so getting them to adopt this method might be difficult. There are other reasons that make it hard for such a system to work in Nigeria. This country will need a lot of infrastructure and an organized system for things like this to function. Unfortunately, we aint even close. :/

  • Chuba,

    This is a very nice piece. As a lawyer am not much of an economist save as is necessary for daily living… Hahaha. However, one angle I see in your piece is our government’s ability/inability to make calculated projections in the process of economic & development planning!
    So just imagine if the Economic Adviser has to make some form of planning on taxis and fares etc for 2014, on what basis would the projections be made? The singular inability to run meters on taxis has created what I called ‘guess work economics of taxi fares’ which both the taxi driver & passenger use in their daily activities! Imagine the resultant effect! Inaccurate billings! So either is over spending or being underpaid!
    This for me reveals how government manages us year in year out! Government’s refusal to insist on doing business the right way will never allow them make the right projections so its all guess work they come up with! Do we have accurate statistics of the unemployed/employed? Pregnant women/children etc so what planning are these guys doing!
    This for me is the essence of your piece – to ridicule the way we govern and are governed by the simple illustration of the taxi/passenger episode. This piece should have actually been titled “The Guess Work Economics of Taxi Prices”. We are in serious trouble in this country unless we get serious with the business of public governance.

    Thank you!

  • Ade Omo Oba

    Nice nice. Am very scared to comment before my oga at the top will say something else. My oga at the top knows my thoughts. Anyways, Location could be another dependent variable…..Abuja and Lokoja price no go be the same. Kudos

    • Haha! Good observation. Such a regression would be done on a state level. So essentially, we would have a cross-section comparison of states. Would make it easy to see what state has the lowest prices and the reasons for that! Thanks for commenting!

  • dvyjns

    sir, you had me laughing all through. But really, we should get some meters in them cars or some means of fixing price to distance covered. As for other independent variables sir; how about fuel price!

    • Thanks for reading and commenting! I’ve added your observation on fuel price to the article! The issue with meters is that a number of cab drivers might not know the way, and might drive all around. You’d end up paying more for their ineptitude. Second, they might know the way, but decide to use the longest way in order to maximize their revenue. Third, a lot of cabs in Nigeria are not exactly licensed under an established company, so getting them to adopt this method might be difficult. There are other reasons that make it hard for such a system to work in Nigeria. This country will need a lot of infrastructure and an organized system for things like this to function. Unfortunately, we aint even close. :/

  • dvyjns

    ….thats rather different from scarcity. Even in a defined Geography as Abuja’s, fuel prices arent the same everywhere.

  • nonamebadguy

    Great article. I think other variables you want to consider are age, geography (is this common in all states in Nigeria?), approximate percentage of customers, approximate percentage of cab drivers, average work time for each driver, average revenue per driver, average operating cost per driver (car ownership, fuel prices, license etc). I think these are pretty good to measure and if you can run an analysis by sector/age you can get some pretty good information. Interesting article though

  • Obiora

    Great article. Another variable is the tribe of the cab driver…Ibo cab drivers tend to charged more while Hausa drivers charge less relatively….hahaha

  • Great piece. I’ve seen so many variables, but can we stick to an average cost of a trip per hour or calculate cost using mileage. Customer has to decide which they prefer.

  • Femi mesh

    This is a very clear Analytic presentation.

    Nice one Doctor

  • kaycee

    that’s wht happens when the goverment leaves everything to the people to manage. what can this government boast of? hopeless people who care less about what we suffer. where is the social contract? nice job

  • Sina

    This is quite interesting and researchable…will not mind if we come out with a standing research paper on this. Once again, it fascinating and nigeria made theory…

  • Sina

    This is quite interesting and researchable…will not mind if we can come out with a standing research paper on this. Once again, it fascinating and nigeria made theory…

  • Hey Chuba, great piece. Other factor I can point out from experience is the union factor. When the taxis belong to unions, they tend to transfer the cost of the union dues to the passenger. Another would the unwritten park rules. For example, places like the FCDA where a lot of taxi’s parked taking turns, I found it was cheaper to just get a taxi that was passing by than take one of them since they seemed to have agree amounts that they asked for for specific routes and under the watchful eyes of other taxi drivers, theres no budging. I guess that goes back to the Union factor

    • Wow. Thank a lot for that observation. I wasn’t aware of the Union Factor. It’s a very important factor to actually consider. Cheers again, for reading and commenting!

      • Fantastic blog you have here but I was wondering if you knew of any diusicsson boards that cover the same topics discussed in this article? I’d really like to be a part of group where I can get advice from other experienced people that share the same interest. If you have any recommendations, please let me know. Thanks a lot!

  • chidi umeh-ujubuonu

    Just love the grandma part,and your analysis is so spot on–looking forward to reading more from your blog.

  • Anonymous

    What’s this obsession for regressions?

    • Kenzo

      I agree with you. Anything can be proved with regressions and its indeed impressive, but it still adds up for little.

    • It’s an economics blog…except you’ve got better ways of measuring multiple effects on a variable. Your ideas are most certainly welcome. Thanks for reading!

  • Nice

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  • john obinna pius

    nice and brilliant piece,kindly follow on twitter @obinna_pius for a follow back,would not want to miss the next write up on your findings.thnks

  • Seriously how can someone categorically say cabs in Abuja are expensive, where the average price for cab is N200, less than a pound! Where are you going sef that warrants 500 bucks. The most ever I’ve paid was 800 to Sauka.

    I prefer being able to haggle prices, based on experience, you’d be able to get a great deal. If they introduce meters, I am too sure that the prices you complain about will go up.

    Wish I could pay Abuja cab prices now!

    • Hmm..first, the average price isn’t 200. There’s no actual calculation on that. Second, using anecdotes does not count as universal facts. From my office to my home, which takes 10 minutes, it cost 400 bucks. Moreover, you don’t provide a timeframe. That’s important. 5 years ago, 20 naira was worth something, well…not now. Can you then say that 20 naira then and now have the same value? Nope.

      Third, I wasn’t ‘complaining’ about prices. The point of the article was to explain the variance in prices across cab drivers. And fourth, there are certainly more expensive places, Lagos would be an example of one. However, the relative cheapness of a place compared to another does not automatically make a place ‘cheap’. It’s cheaper than the other place, but it’s still expensive.

      Thanks for reading and commenting! 🙂

  • There is also the factor of lady seen with man when the man is trying to flag down a taxi for her. The fares go up because the assumption is that the man won’t want to look cheap by over bargaining.

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  • Enjoyed this! Well written and the discussions are just as enriching! well done. (By the way, shared norms of bargaining is one other important determinant of final agreed fare).

    • Precisely why Expats often get ripped off in Nigeria. Social norms are indeed key determinants of economic behavior! By the way (again), have you noticed the culturally induced differences in the bargaining strategies of the different ethnic groups in Naija? Let me illustrate with just two groups – the igbos and yorubas (names listed in alphbetical order-o, …not in any order of political astuteness or economic sophistication or industry!) The igbo person starts by making a lowest offer and then bargains upwards and is usually willing to pay and is bound by the offer he/she makes.. The yoruba usually starts with a high offer and then bargains downwards. The two pricing strategies have very valid economic motives but can produce very different reactions from the seller!

  • Reblogged this on visionvoiceandviews and commented:
    How to avoid being taken for a ride!

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  • temitope adamson

    A very good work! The issues were clearly spelt out. The main challenge as u rightly pointed out is which variable would be dependent on the other. Nice one though.

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