One-hundred and fifty years ago, Edwin Chadwick described the grim public transportation situation in Paris. He could have been writing about almost any Third-World urban center of today. His observations reveal a unique market failure: that transit operators don't compete on the basis of price. Rather, their competition results in inefficient, undesirable, and dangerous outcomes. As Andres Gomez-Lobo puts it, public transit operators should compete for the market instead of in the market.
“I Found at Paris that the attention of the Municipality had also been turned to the service of Public Conveyance, which was in a state analogous to that in London, of vehicles provided by numerous conflicting small capitalists giving inconvenient, and, in every way inferior, service to the public. By authoritative intervention an improvement was effected on the same principle as that effected in respect to the supplies of gas, and with like results… The separate Proprietors were allowed either to take money awarded as compensation, or shares to the amount in the one new Company, which had made the best offer for the whole field of service…The immediate gain to the public was increased convenience, regularity, and freedom of communication, and a general system of correspondence and increased responsibility. Instead of, as in London, streets encumbered and disturbed by nearly empty, or only partially filled inferior vehicles, sometimes crawling with a few passengers, annoyed by detentions for a full load, at other times racing, and dangerously over laden, the circulation throughout Paris was made regular from regularly appointed stations, at fixed charges, which excluded extortionate variations. But I was particularly struck with the necessary effect of the change in the social relations of the men engaged in the reformed service, in the immediate suppression of that antagonistic relation, and its consequences, which we see most fully developed in London, in perpetual wolfish conflict, engendering habits of ruffianism, with extortionate yet precarious earnings spent in dissipation and without reserves for sickness and old age."
WSJ: Quit Modifying Capitalism
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