The Essential Services Commission will look at prices for hailing a cab or taking a taxi from a rank, with its director of pricing saying demand for these services is not as strong as for pre-booked rides.
"Consumers hailing a vehicle in the street can't shop around for a better deal, so there is less competition and fewer pricing options for passengers," Marcus Crudden said in a statement.
He said the review was aimed at protecting passengers for paying too much.
But Transport Matters MP Rod Barton said the process would delay a much-needed pay rise for taxi drivers.
"Bills, rent, school fees, groceries, petrol prices... these are all things taxi drivers are worried about while the ESC conducts their time-consuming review," the upper house MP said.
"Taxis provide an essential service to the community, yet they are being forced to work in a set of conditions and with a rate of pay that most Victorians would not accept."
Petrol prices hit seven-year highs late last year, with rolling average prices in east coast capitals hitting 172.4 cents per litre.
While ride-sharing services such as Uber charge fares that increase according to demand, taxi drivers can only charge up to a maximum fee set by the commission.
New laws mean the commission can consider the commercial viability of operating a taxi service, as well as the Fair Work Commission's annual wage review.
Many taxi customers switched to Uber since its Australian launch in 2012, but a 2017 Victorian parliamentary inquiry into ride sharing services heard drivers work long hours for little pay to make ends meet.
The ESC review is open for comment until March 16, with a final decision due in September.
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