Summary This study models and examines the taxi customers' preferences for hailing vacant taxis on streets. A stated preference survey was conducted to randomly select and interview 1242 taxi customers at taxi stands and pedestrians on streets, who had experiences of taking taxis recently, about their choices under different given hypothetical scenarios. In total, 4968 observations were collected and used for developing the discrete choice models for the analysis. To account for the potential correlations among alternatives, two nested logit models are developed, calibrated, and compared with a standard multinomial logit model in the investigation. The results of likelihood ratio test demonstrate that one of the developed nested logit models is better than the standard multinomial logit model to describe the search behavior of taxi customers. The model results also show that the walking time to and the waiting time at the location for hailing taxis, the extra travel time to the destination because of local circulation for finding a way from the pickup location heading to a passenger's destination, as well as the taxi customers' perceptions for walking to and waiting at taxi stands were found as significant factors to influence their decisions. In addition, the results of market segmentation analysis illustrate the variations in taxi‐search strategies of taxi customers in different districts and regions. Some policy implications on introducing more taxi stands and improving the utilization rates of taxi stands are also discussed. We believe that the proposed models, findings, and discussion are useful for developing micro‐simulation models to evaluate the performance of road traffic networks with taxi services and developing simulation‐based optimization models to answer policy questions related to taxi services. Copyright © 2015 John Wiley & Sons, Ltd.
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