There are 80,000 matatus on Kenyan roads, most of which are owned and operated by Kikuyu. I estimate (I sit a lot in the matatus and have ample time to analyze the business) that a matatu has an income of $100,000 per year: on average each Kenyan spends over $200 per year for matutu transportation. The conductor rents the vehicle for the day, including the driver, and pays for gas and other expenses keeping whatever is left over at the end of the day. So, he has to push and push to make sure that he doesn't actually lose money. The relationship between the conductor -- who is always trying to increase the price of the ride, stuff more people into the vehicle, and get the driver to go faster -- leads to amazing antagonism. There is no customer service, but customer dis-service. The riders continually believe that they are being abused and taken advantage of. This happens almost every time one gets into a matatu.
How can this be? Dave must be leaving something out. In a marketplace with many buyers and sellers, competition ought to extinguish such behavior. Yet it doesn't, according to Dave's description. Dave is a Quaker, and so I'm sure that he's relaying the facts as accurately as he can. So there must be something else happening, that he left out of his description.
Whenever you make a choice in a marketplace, you are presumably making the choice that pleases you the most (or minimizes your unease). If an outsider like myself looks at your market, and perceives that all your choices are bad, he (I) must conclude that something is preventing better choices from arising.
I don't know enough about Kenya to say what that thing might be. I can, however, speculate on possible causes.
- Licensing. The Kenyan government might restrict the number of matatus available to passengers. New York City does this by restricting the number of taxi medallions it issues. Last I heard, the price of a taxi medallion is $50,000. If you guess that the entire amount of this sum must be paid by taxicab passengers, you'd be right.
- Bus stops. Control the bus stops, and you control the bus industry. If a matatu is only allowed to pick up passengers at a bus stop, then whoever controls the bus stop also controls the rides that the passengers receive. Airports in the US typically only allow taxicabs to pick up passengers at taxi stands. Drivers who wish to pick up a fare at the airport must go wait in a line.
- Inefficient branding. Let's say that you wanted to charge a little more and provide better passenger service. How would you communicate this to your potential passengers? If the government doesn't protect branding (trademarks), then your competitors could just adopt your branding, and your prices, but provide poor customer service and save themselves money.
- Tribalism. As Dave says, nearly all matatus are owned by Kikuyus. Tribes may have a prohibition against price competition by fellow tribe members. Somebody who tries to out-do his fellow Kikuyu may find that in-tribe penalties are assessed.
- Poor incentives. It may be that the matatu owners have structured their businesses so that conductors and drivers are rewarded only for poor service. That would be a mistake, but cultures can drive mistakes, e.g. Germany's antisemitism for a century preceding Hitler.
- Ignorance. It may be that the matatu owners and conductors have simply not discovered that they can make more money and charge a higher price by providing better service (this is unlikely, but consider that every economic discovery had to be discovered, and rediscovered whenever forgotten.)