Why “Negotiating” for Tourists = Getting Ripped Off

Taxi drivers in Malaysia are dishonest, if not in all individual cases, then as a group. To make matters worse, and I’m generalizing from my own experiences, the taxi drivers seem to be determined to rip off tourists. There. I said it. It felt good.

Every taxi ride I’ve taken in Malaysia I have felt ripped off to some degree, and in a couple of cases it was so blatant as to be outright insulting to my intelligence. Some examples: drivers who attempted to charge more than the posted amount for a given destination, even though the amount was on a price schedule poster right where we got picked up; being charged  for a five minute ride what it would cost to go all the way across town; being purposely taken to the wrong place, and then in order to be taken to the correct place having to pay extra. Finally, when it got to the point of being ridiculous  and a driver tried to charge us about ten times what we knew to be a fair price, we just walked away. He then shouted another price that was only about seven times what it should have been. We walked about a block and caught another taxi that charged us a third what the first guy asked, and even that was three times more than it should have been. Now we just don’t take taxis.

taxi haggling sign

Most taxis in Malaysia have signs both inside and outside of the car that say, “This is metered taxi. Haggling is prohibited. Request for your receipt.” Poor grammar aside, there is another problem with this: it is a bald-faced lie. In all the taxi rides I’ve take in the couple of months I’ve been here, only once did the taxi have a working meter, or, I should say, did the driver use the meter. A couple of times I even asked the driver about it point blank, and the answer has always been evasive, something mumbled about how it is broken. I asked about the meter once when a small group of us were trying to get the driver to agree on a price. “You know,” I said, “if you used the meter we wouldn’t have to even talk about this.” The driver, acting as if he was responding to what I said, went off on some totally irrelevant tangent. I didn’t want to make scene, so I dropped it, but the point is that the drivers purposely don’t use the meters because they know they can get more out of their fares if they don’t. If they were charging a fair amount, then they would use the meter. The meter is never going to prove that they are not charging enough; its only purpose it to show if they are charging too much.

This problem obviously became serious enough at some point where meters became required and cabs were required to have the no haggling signs on them. Unfortunately, it apparently wasn’t serious enough for there to be any enforcement of the regulation. The meters are there, but turned off, and the signs are there, but they are ignored. So for some bureaucrat the problem is solved, but for tourists who take cabs nothing has changed.

The guide books recommend getting  a set price before you get in the cab, but this can be tricky if you are not sure how far you are going, or if you simply don’t know how much to expect to pay, or even what the money is worth relative to your home currency. So the negotiation between driver and rider is a pretty one-sided affair. In fact, it can’t be properly called a negotiation at all.

Haggling over prices for a lot of Western tourists is surprising and uncomfortable in the first place. For people from developed countries that do most of their transactions in formal systems (like supermarkets and department stores) rather than informal ones (like street markets), the idea that prices are not fixed can be daunting. We’re used to thinking of prices as fixed and being based to some extent on the costs to the seller of production and distribution with, of course, a mark-up that gives and incentive for the seller to be in business in the first place. Anyone who has studied marketing, economics, or managerial accounting understands that pricing is an important part of business strategy, and it can be a very complex process to arrive at a price that covers costs and maximizes profits. Further, the price also has to be acceptable to the buyer or none of the rest matters. In places like the U.S., consumers tend to think that the marked price on a product must be fair and reasonable, so they pay it without questioning it. Or they think it is too high, and they pass the product by.

There may be some negative consequences of this “set price” system. For example, when consumers blindly accept the marked price without question, they may not be practicing a high level of critical thinking about how they are spending their money. Maybe it is also eroding our social connectedness in that buyers don’t spend much time talking to vendors. It is fairly passive.

On the other hand, there is a certain fairness to the whole thing. Everyone pays the same price for the same product or service. More aggressive or savvy buyers can’t badger sellers into giving them lower prices, and more aggressive or savvy sellers can’t extract higher prices from weak-willed buyers. The benefits to keeping accurate accounting records (and therefore accurate tax reporting, among other things) are obvious, and transaction costs are kept low, especially in terms of time and aggravation, particularly for the meek, who may eventually inherit the earth, but in the meantime usually do poorly when it comes to haggling.

From a purely economic standpoint the argument could be made that haggling represents the perfectly competitive market forces that bring supply and demand into balance. Theoretically that is true. Sellers ask the most they think they can get, and buyers offer the least they think they can pay. Negotiations start there and end when both sides are satisfied that they got the best deal they could. The problem with haggling for tourists (and, it could be argued, for haggling in general) is that there is an asymmetry of information. Specifically, the seller knows more than the buyer.

One of the requirements for a perfectly competitive market is that all parties have complete information. Obviously this is not the case in the market for taxi rides. Even in a person’s own city he might not know the exact distance to his destination, or how much the ride is per mile even if he did. He might not know the way there. In a new city in a foreign country add in factors like the different currency, total unfamiliarity with the surroundings, and lack of knowledge of what a typical cab ride should cost. In this case, true negotiation is not possible. Hence, metered taxis, and in the absence of meters, cab drivers systematically ripping off tourists.

There are a lot of idle police here in Malaysia. Every few blocks a group of cops sits around an umbrella-shaded table doing nothing. The taxi issue would be simple to remedy. All it would take would be for those idle cops to walk down the street and check each cab for a working meter. No meter, instant fine. Several infractions, no more hack license. To take it a step further, police could check with passengers getting out of taxis. If they don’t have a receipt, the driver could be cited. In addition to protecting tourists, the fines could be a source of income for the city. Getting drivers to have all their fares on the books would increase tax revenue as well. Clearly there is no political will to do anything about it–tourists don’t vote, except with their feet, and in the greater scheme of things the risk of getting overcharged for a cab ride probably isn’t going to be enough to get many people to change their travel plans.

Since I’ve been in Malaysia I’ve had a pretty good experience, but my encounters with dishonest cab drivers have colored my view of the place. It isn’t just the drivers (I am tempted to say that they are just trying to earn a living the best way they know how, but that is a slippery slope, as well as an argument used by criminals to rationalize their victimization of others). It is also that there is clearly a level of official corruption that allows this to happen.

Maybe I’m cheap, maybe I’m paranoid, but knowing for certain that there is an entire industry that actively seeks to take advantage of my relative lack of information makes me feel like a victim. Now every time I go to a shop or restaurant where there’s no menu, or prices are not posted–and there are many–I get suspicious.  Why did one guy at the mini mart charge me ten ringits for something, and the next day a different guy charged me nine for the same thing? Are there one set of prices for locals and another for tourists? Probably. Do they just make up prices off the tops of their heads? I wouldn’t be surprised. Am I actually being ripped off? Maybe and maybe not. Either way knowing for certain that I’ve been ripped off by cabbies makes me feel like a target, and that’s not a nice way to feel. If I was offered a decent job here would it stop me from taking it? No, but it would keep me out of taxis and away from places without set prices.


If you are interested in the information asymmetry concept, you might want to read “The Market for Lemons: Quality Uncertainty and the Market Mechanism,” by George A. Akerlof (he won a nobel prize in economics for it) http://www.iei.liu.se/nek/730g83/artiklar/1.328833/AkerlofMarketforLemons.pdf