I’ve seen this as a plot point in one or two TV shows: Apparently, in New York City, to drive a taxi you need a city license that comes with a “medallion,” and the supply of such is limited – in fact, sometimes the licenses are auctioned off! Why is that? What’s the downside of treating this like any other business, where the city/county “business/occupational license” is not of limited supply and is only a way for the city/county to collect a small annual fee? (That’s how it works for most small businesses in Florida, anyway.)
I don’t know the answer, but I’ve wondered if it is related to the limited supply of liquor licenses. Not that the price of a liquor license is anywhere close to that of a taxi medallion, but maybe there is similar logic in the limited numbers. I can see that the government might not want a gazillion bars on every corner, but I don’t know what’s wrong with a gazillion taxis.
Everything, if you paid a fortune for, and own, one of the existing limited supply of medallions. Such persons lobby hard not to raise the number of medallions, and since they care about it a lot more than the general public cares about having a few more taxis on the street, they win.
Okay, let’s rephrase the question: Why was the limit imposed in the first place?
Since a medallion is essentially a license to operate a taxi, I’d think it would allow for regulation.
As to why they limit the number, I suspect it has to do with raising the rates; if any dude can pick someone up and drive them somewhere, your fare floor is whatever that random guy is willing to charge, versus what the lowest medallioned taxi driver is willing to charge.
When the medallion system was introduced in the 1930w, there was actually an oversupply of drivers, and corruption was extremely widespread. There were around 30,000 hack cabs in NYC in the 30s. Today, there are around 13,000 medallions Interesting link.
The fares are also set by the City. It is illegal for a medallion cab to charge less (or more) than the stated fare.
It is also illegal for a non-medallion vehicle to pick up a “street hail.” For Hire Vehicles, also known as Black Cars or “Car Service” cars, can dispatch from a base station when a customer calls, but cannot pick up a hail (but often do, an FHV picking up a passenger is known as a “gypsy” cab). There is talk of permitting FHVs to pick up street hails in the outer boroughs.
Two questions:
(1) If there’s an oversupply, wouldn’t lack of customers cause some of the drivers to go out of business naturally, without government intervention?
(2) What do you mean by “corruption”? Do you mean drivers who would go on unnecessarily long routes and/or overcharge in other ways?
The link Hello Again provided answers that:
Perhaps the market would have equalized eventually, but given the unrest it sounds like there would have been violence in the streets in the short term.
I would also think there would be a traffic congestion issue if they allowed anyone who wanted to to operate a cab in Manhattan. There are about 1300 miles of streets in Manhattan, which means there are currently ten medallioned cabs per mile.
Thanks, Bosstone, I missed that link.
Still, I wonder why the supply stayed so small for so long. I understand that with the value of a medallion around a half million dollars nowadays, there is significant pressure from the owners not to let the value drop by allowing more medallions. But if they had allowed more medallions in the 1940s, gradually growing with the times, taxi medallions would never have been more valuable than a liquor license or a pushcart license. I wonder why that didn’t happen.
To address the first question, think of wildlife game management. Free markets and lack of regulation sound great in theory but there are downsides.
If wildlife populations aren’t managed (such as the deer population) you get extreme swings in the numbers. Let them populate unrestricted and it will get to the point where large numbers are starving in the winter. Then the population will dwindle to the point that it takes a long time to get back to what might be a “proper” level. Then the cycle starts all over again.
If you can’t relate to how regulation and management benefit the cab drivers and operators go to a large city in a developing country where there is little or no regulation of taxis. Prices are all over the place. Customers are at the mercy of unscrupulous drivers. Corruption and goon activity develops within the industry. They start to regulate within the industry through bribes, kickbacks, intimidation and other tactics. I’d rather have the government doing the regulation rather than the mob. I know sometimes there seems to be little difference but I’ll still go with the government.
It’s tough being a cab driver. It helps everybody to have a fleet where a driver can be reasonably assured that he will be able to scratch out a living. It helps the public that they can be reasonably assured that they will be able to hail a cab.
This is not to say that the NYC taxi fleet has always been properly managed. It has not, but at least it’s not a free-for-all. The taxi fleet is an integral part of the NYC public transportation system. It needs to be managed and regulated.
I guess I wasn’t clear enough. Let’s try it again: Isn’t it possible to have regulation of an industry without restricting the numbers in that industry? I understand that if the numbers are too high, then the gov’t doesn’t have the manpower to watch them closely enough. But it seems clear that the number of medallions could have been raised to natural levels, and for some reason the city didn’t do so.
FYI, this PDF document offers statistics on the prices that medallions are getting. Sales by individual owners averaged $673,000 in June, while sales by corporate owners averaged $975,000. I’m not clear on why there is a difference in price between individual and corporate owners.
I’m not sure what you mean by “natural levels.” Surprisingly to most, the population of NYC proper was about the same in 1940 and 1990.
I am indeed surprised by that. Still, the price of a medallion would not be what it is, if the purchasers didn’t believe that they’d be able to recoup that investment. In other words, the high demand for medallions is good evidence that there is a high demand for more taxis on the streets. In other words, there aren’t enough taxis for public demand. “Natural levels” is where the supply and demand are not ridiculously out of match.
Almost every city licenses taxis. New York just happens to be one of the few where it’s legal for a license (medallion) holder to sell the medallion to someone else instead of returning it to the city. So in one sense, the price of a medallion is “natural,” as it’s driven purely by supply and demand, not by a price set by the government.
As for why taxis are licensed at all, it wasn’t just the driverswho were being victimized back in the old days. (warning: PDF)
What I want to know is why they feel the need to force all cab drivers to drive the same kind of car. (And if they do have a good reason, why did they choose such an awful and ugly vehicle?)
If you want awful and ugly consider the Crown Vic.
The price is set by the government when it limits the supply.
Matt Yglesias is a blogger who frequently rails about this issue. Apparently DC is considering implementing a similar system of taxi medallions, and Yglesias discusses it here. His take is that there’s “no point over-complicating it”: in his telling the DC mayor is considering implementing a medallion system - and using it to restrict the supply of taxis below the market rate - because it will benefit the current cartel of taxi drivers, who supported him in his mayoral campaign. If you restrict the number of cabs and cabs become more scarce, prices are higher and there’s less competition. That’s good for the current cartel of taxi drivers, but bad for aspiring taxi drivers and bad for passengers.
It sounds like NYC is a similar case. There are good arguments for why taxis and taxi drivers might need to be registered, authenticated and regulated by the city - to make sure the cars are well-maintained, to help reassure passengers about getting into a car with a complete stranger, to help prevent the drivers fare-gouging or using unscrupulous practices - but you rightly ask why the number of medallions needs to be limited. The answer is that whenever the number of medallions is limited at a certain level below what the free market would provide, it’s because it benefits the taxi drivers. It creates an artificial monopoly that brings them more business and higher fares.