Dynamic pricing: How can European cities adapt to this innovation in taxi fare setting?

Taxi services have long been a flexible, on-demand part of urban transport networks across Europe.  

The arrival of app-based services has revolutionised both the taxi industry and how people choose to get around.  

Dynamic pricing, a mechanism by which taxi fares can be adjusted based on real-time driver supply and rider demand conditions, can offer benefits to both taxi riders through a more reliable taxi service and taxi drivers in the form of improved income through higher trip completion rates. However, taxi fares in most European cities are highly regulated, which can limit the ability to offer dynamic pricing.  

Working with Uber, Steer has developed a report that assesses how dynamic pricing can influence the performance of e-hail taxi services in Europe and identifies policy measures that could enhance the reliability and long-term sustainability of taxi services across Europe. 

This study draws on a range of evidence sources, including: a review of existing literature, analysis of current regulations and fare policies across 22 European cities, and an analysis of taxi trip data made through Uber’s platform across 15 European cities, providing real-world evidence of how different regulatory approaches shape market outcomes.  

Our findings showed that: 

Upfront fares promote fare transparency and help improve taxi performance

The ability to offer upfront fares can provide riders with a more accurate trip fare estimate before booking, help riders make more informed travel decisions and eliminate ‘meter anxiety’ by enabling fare transparency. Research has shown that 52% of riders prefer upfront fares, while only 21% prefer metered fares. 

Dynamic pricing can improve the reliability of taxi services while unlocking higher earnings for drivers

The introduction of dynamic pricing can improve the balance between the number of active drivers and riders requesting trips, leading to more riders securing a ride more easily, and encouraging higher levels of driver utilisation, expanding their earning potential. Analysis of Uber’s taxi activity data showed that European cities where regulations allow either limited or full dynamic pricing resulted in 26% higher taxi trip completion rates for app-based trips than cities with meter-based fares only.  

Dynamic pricing can improve taxi access and equity

The introduction of dynamic pricing can incentivise drivers to serve demand across a wider geographic area and improve taxi affordability. Analysis of Uber’s taxi activity data indicates that across all times of day, riders in cities with only meter-based fares pay up to 64% higher fares per km compared to cities that allow full dynamic pricing (adjusted for purchasing power parity). 

Based on these findings, we make five policy suggestions:  

1. Implement differentiated fare policies for e-hail versus traditional taxis 

Cities can maintain distinct regulatory frameworks for different service types. Amsterdam, Vienna, and Oslo require meters for street hailed taxis whilst permitting dynamic pricing for app-booked trips. This differentiation provides user choice: drivers can opt for e-hail trips when fares are higher or in times and places where street-hail activity is low, while riders can still choose between upfront, dynamic fares and meter-based street-hail trips. 

2. Launch pilot dynamic pricing schemes 

To explore the impact of changing fare regulations, cities can implement controlled pilot programmes to test the impact of dynamic pricing and upfront pricing. San Francisco’s approach demonstrates an example of an effective pilot, which included voluntary driver participation, clear metrics for evaluation, and changes to fare policies based on the positive outcomes of the pilot. 

3. Establish flexible fare bands 

Rather than a binary choice between offering meter-based or full dynamic pricing, cities can implement pricing bands that balance flexibility with oversight. Cities including Vienna and Berlin allow fares to vary to a certain degree from the standard rate (e.g. ±20% of metered rates), while other cities such as Paris and Madrid have implemented maximum fare caps. While our research indicates that full flexibility optimises benefits to riders and drivers, this approach enables a certain degree of pricing variability, which can be more effective than only offering meter-based fares. 

4. Support driver transition and adoption 

Successful transitions to dynamic pricing require gradual implementation approaches that allow drivers to adapt to new systems. Cities and platform providers can help drivers understand the potential to increase their earnings through higher levels of utilisation by sharing emerging results and examples from other locations. Transition support can include training on digital tools and temporary financial incentives for early adopters, recognising that fare reform will represent a fundamental operational change for established drivers. 

5. Optimise licensing and geographic requirements  

Cities can reduce barriers to taxi access and improve equity in service provision by simplifying e-hail taxi licensing policies. With the wide-scale adoption of GPS technology, London has recently reduced its driver knowledge test requirements, while Ireland has completely removed this requirement. Furthermore, regulations that limit the geographic coverage of taxis can prove to be counterproductive in some cases and can extend gaps in transport accessibility. To resolve this, Paris has exempted pre-booked taxi trips from geographic constraints without compromising traditional taxi operations. 

“Enabling dynamic pricing can make e-hail taxi services more affordable, improve service reliability, and better align supply with demand, helping cities modernise policy for a fairer, more efficient taxi market. 

Steer’s new mobility team specialises in assessing the impacts of technology and innovation in transport, and we are ready to help cities and service providers across the world unlock their benefits through delivery of accessible, inclusive and sustainable transport solutions.” - Susmita Das, Steer’s lead author of the report.

To explore how these findings inform your city’s fare policy and regulation strategy, or to speak to an expert about new mobility pilots and designing effective frameworks, contact Matt Clark.