Web-based Uber, which has swept the globe in the past three years, is set to begin operating in the city soon.
The multi-billion-pound US company connects passengers to a background-checked driver via a smartphone app, with the firm taking a 20 per cent cut of the fare.
Private hire permit costs have been slashed by two-thirds, prompting a rush of applications.
With the promise of cheaper fares, Uber’s arrival in Edinburgh is set to spark fierce competition for business.
Black cab drivers say the reduction in licence costs will disproportionately benefit anyone signing on with Uber.
And the boss of one major taxi firm insisted there was no unmet demand for hire drivers in the city.
Central Taxis director Tony Kenmuir said there had been an increase in applications from private hire drivers since the reduced fees were put in place.
He said: “The number of private hire cars has been fairly static for some time but we believe there has been some additional take-up recently since the council substantially reduced the cost of new licences.
“That doesn’t benefit the trade because a regular, independent survey has concluded that there was no significant unmet demand for taxis and no new licences are being issued.
“Cheaper licences for new private hire cars could potentially benefit any private hire company looking to grow its business and that would include Uber if they start trading here.”
Fees are being cut from £1614 for 2015-16, with new private hire licences just £500 and new black cab licences costing £600.
Private hire numbers are not controlled, meaning new drivers could save £1000 in start-up costs if they were looking to join Uber.
In March, Uber received licensing approval for an office on George Street, with transport experts speculating that the firm could snatch up to 40 per cent of the taxi trade.
The Evening News contacted Uber but the firm did not comment.
It has previously been criticised for concerns over the lack of regulation for drivers.
A council spokeswoman said: “In February 2015 the council reviewed the cost of all licensing fees and as a result reduced the price of a new vehicle licence for both taxis and private hire cars.”