Ride Sharing Services Lead Taxi Medallion Values To Plummet (And That's A Good Thing)
from the competition-is-good dept
Three years ago, Planet Money did an episode on the ridiculous economics of taxi cab medallions, the protectionist, anti-competition way in which cities keep competition scarce for taxis, and (thus) drive up taxi fares. Yes, sure, the taxi folks will tell you, these medallions are supposed to “regulate” the market to keep it safe, but as pretty much everyone knows, the reality is that they’re just to limit competition and keep prices high. So, given all the new pressures on that market from ridesharing* efforts like Uber** and Lyft, it shouldn’t come as much of a surprise that taxi medallion prices are plummeting rapidly. They’re still high — for now — but they’re dropping fast and that’s likely to continue:
The average price of an individual New York City taxi medallion fell to $872,000 in October, down 17 percent from a peak reached in the spring of 2013, according to an analysis of sales data. Previous figures published by the city?s Taxi and Limousine Commission ? showing flat prices ? appear to have been incorrect, and the commission removed them from its website after an inquiry from The New York Times.
In other big cities, medallion prices are also falling, often in conjunction with a sharp decline in sales volume. In Chicago, prices are down 17 percent. In Boston, they?re down at least 20 percent, though it?s hard to establish an exact market price because there have been only five trades since July. In Philadelphia, the taxi authority recently failed to sell any medallions at its asking price of $475,000; it will try again, at $350,000.
In cities like San Francisco, there’s been a 65% decline in cab use as people shift to these more convenient (and often more affordable) alternatives. And the trend appears likely to continue:
* Yes, I know some people hate the term “ridesharing” for these kinds of services. But that’s what they’re commonly called, and it’s perfectly reasonable to call them that.
** Yes, Uber has been getting a ton of bad press lately for a vareity of statements and actions that, at the very least, suggest a rather cavalier attitude towards privacy, and a very aggressive view towards everything else. Thankfully, if you don’t like the way Uber conducts its business, there are alternatives.
Filed Under: competition, economics, ridesharing, taxi medallions
Companies: lyft, uber
Comments on “Ride Sharing Services Lead Taxi Medallion Values To Plummet (And That's A Good Thing)”
I’m puzzled by those cheering private multi-billion dollar foreign ride-sharing mega-corporations.
Regulated taxicabs have generated millions in municipal revenue paid in form of business licensing, regulatory
taxes, municipal dues, disability surcharges, etc.
Ride-sharing mega-corproations literally pay none of that.
Cities across the states are losing billions of dollars
that otherwise would be spent on local municipal projects.
I understand that private Uber is now valued at 40 BILLION
dollars. Money lost by small businesses and hundreds of
municipalitites has been added to valuation of private
tax-evading mega-corproation.
If you think that this is “progress”, then let me tell
you that an app should not be an excuse to evade taxes
and break laws.
What municipalities miss in revenue, authorities will
compensate through higher taxation. And you dear reader,
too, ar on the hook because some private offshore mega-
corporation decided to break laws and make billions in
some offshore accounts. Fast, before people catch up!
Re: Re:
Your faith in the benevolence of the State is quaint. Yes, some companies are bad apples…as are some bureaucracies. Guess I’d rather choose with my wallet than have a choice imposed on me by a government.
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The benevolence of the State isn’t direct subsidy but the franchise agreement that someone will always be available to serve your needs no matter where in town you are.
If private enterprise were allowed, the ‘sticks’ still wouldn’t have cable or in some cases running water. It’s simply not profitable to serve those customers unless you have the full customer base to make up for it. Society is better off when everybody gets a fair shake, even at the expense of slightly higher pricing for the easily served.
Now, franchise agreements have their problems to be sure, but without acknowledging the benefits of a faster build out of infrastructure it’s not a fair comparion.
Is Taxi service infrastructure? Certainly not in the traditional sense, but its the same with Fedex/UPS. There are places they simply don’t serve…yet the USPS is required to do so.
Do we cast off the ‘hard to serve’ in the name of cheaper pricing for the masses?
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If you want to live in a difficult to serve area that’s your choice.
Cable companies don’t serve many areas or, if they do, they will charge a lot.
https://www.techdirt.com/blog/netneutrality/articles/20141110/08485629095/you-too-can-finally-join-modern-broadband-era-rock-bottom-price-20000.shtml
Cable companies essentially negotiate which areas they will serve based on what areas are most profitable to them already.
“There are places they simply don’t serve…yet the USPS is required to do so.”
If people from those areas pay more then FedEx and/or UPS will serve those areas as well. However, if you grant a monopoly and let it choose what areas to serve they will charge everyone more including those people in the hard to serve areas.
and there aren’t really many areas not served by either UPS, FedEX, or some third party mail carrier that is served by USPS. USPS also benefits from economies of scale because they have a mailbox delivery monopoly that enables them to unfairly distribute their costs more evenly so that they can charge less.
“Do we cast off the ‘hard to serve’ in the name of cheaper pricing for the masses?”
A monopoly makes prices higher which ensures that only those wiling to pay more are served. Those willing to pay less (the masses) will not be served and will be cast off. In the case of taxi-cab medallions limiting the supply will naturally cause fewer people to be served because fewer drivers can serve fewer people. Only those willing to pay more will be served while everyone else, the hard to serve, will not be served. Tax-cab drivers also naturally choose areas that are easiest to serve because that’s more profitable so your under served argument doesn’t really apply here. Reducing limitations on supply ensures that more people can get served. If you have five taxicabs they will naturally serve the easiest to serve areas that are more profitable neglecting less profitable areas. If you have ten taxicab drivers maybe seven will saturate the more profitable areas leaving three to serve less profitable areas since the more profitable ones are already saturated.
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You say bug, I say feature.
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“Cities across the states are losing billions of dollars
that otherwise would be spent on local municipal projects.”
Money is simply a medium of exchange and has no value in and of itself. Government monopolies and government regulation that limits competition reduce aggregate output. Aggregate output is the metric by which a nation’s wealth is best measured. These monopolies raise prices hence reducing output which harms everyone.
Lately? Uber’s been getting horrible press since Sandy tore up New York at the very least. Those regulations they’re making such a big deal of flouting exist for a reason, and people have been catching on for quite a while now. Techdirt, unfortunately, has been way behind the curve on this one.
But let’s just keep pretending they’re awesome and ‘disruptive’ and actually improving things, and let them go on their merry way. What could possibly go wrong?
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And New Yorks medallioned Taxi services have such a stellar reputation?
When I looked on Google, I could not find a single horror story about your precious taxi companies s
What world are you on?
Uber's earned that bad press
Let’s see. There’s: http://pando.com/2012/10/31/assholes-shrug/ about their behavior during Sandy. There’s their highly sexist and blatantly exploitive http://www.buzzfeed.com/charliewarzel/french-uber-bird-hunting-promotion-pairs-lyon-riders-with-a ad campaign. There’s the move to spy on journalists http://www.buzzfeed.com/bensmith/uber-executive-suggests-digging-up-dirt-on-journalists and the whole “god view” http://www.buzzfeed.com/johanabhuiyan/uber-is-investigating-its-top-new-york-executive-for-privacy business. Then there’s the question of what its app is to up to: http://www.gizmag.com/uber-app-malware-android/34962/ and http://www.gironsec.com/blog/2014/11/what-the-hell-uber-uncool-bro/ although there may be some mitigating circumstances http://thenextweb.com/apps/2014/11/27/ubers-app-malware-despite-may-read/ about that one.
And I didn’t even mention the booking-5000-fake-rides-at-a-competitor stunt.
Uber is apparently desperately trying to prove that there are startup companies that are more corrupt, more unethical, more greedy and more abusive than LinkedIn and Facebook. That’s a high bar to clear, but they’re certainly making a valiant effort.
Re: Uber's earned that bad press
Yeah, this is what happens when you let an Objectivist run a company and then it gains some measure of success. It’s what happens every time, and you’d think people would have learned by now.
Remember, kids, those who do not learn from history are doomed to repeat it.
Most of the objection to Uber et al comes from their blatant attempt to dodge regulations that are in place for a damned good reason. The position of cab services as operating potentially lethal equipment and frequently dealing with isolated and vulnerable customers justifies a proactive approach to regulation.
And while it’s certainly true that taxi permits have been abused around the world as a means of overly limiting competition, this does not mean that all deliberate attempts to control competition are wrong. Preventing a race-to-the-bottom fast-churn taxi industry that fails to provide a living wage for its drivers and motivates corner-cutting on safety is also a legitimate regulatory concern.
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Most of the objection to Uber et al comes from their blatant attempt to dodge regulations that are in place for a damned good reason. The position of cab services as operating potentially lethal equipment and frequently dealing with isolated and vulnerable customers justifies a proactive approach to regulation.
Care to elaborate on which of these “regulations” are not dealt with in an efficient manner using the instantaneous feedback from customers and drivers that are inherent to these new business models?
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Doesn’t each state also have vehicle registration and inspection and driver licensing to keep unsafe vehicles and drivers off the roads?
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Surprisingly enough, no. AZ has no vehicle inspections except in Tucson and Phoenix, and those are only for emissions. You should see some of what drives around down there.
Plus with the number of miles being racked up on these vehicles it’d prolly be better to inspect them more frequently than regular cars, at least annually if not twice annually (when i moved out of NJ they were switching to biannual emissions testing, not sure about safety).
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The state I live in has no vehicle inspections. Car registration is solely for the purpose of generating revenue and ensuring that there’s a record of who owns what vehicles.
There’s a similar deal with driver’s licenses. You have to pass a test when you get one for the first time, but from then on no testing ever happens. Renewing your license is simply a matter of filling in the form and paying the fee.
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“all deliberate attempts to control competition are wrong”
All deliberate attempts to limit competition are wrong.
I have nothing against safety regulations and such. Attempts to limit competition are wrong in and of themselves.
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“Most of the objection to Uber et al comes from their blatant attempt to dodge regulations that are in place for a damned good reason.”
No one is against regulations in place for a good reason. The taxi cab medallion regulations are mostly put in place due to political corruption to limit competition. Political corruption is no reason to have regulations.
I am not against safety regulations and whatnot. There is absolutely no good reason to pass regulations intended to limit competition and taxi cab medallions explicitly limit the number of drivers and are a result of political corruption. That’s not acceptable.
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You mean like everyone who drives a car? Are taxi’s more lethal than other motor vehicles? Why is it the for 99+% of the population a special document known as a “Drivers License” is sufficient to handle said lethal equipment, but a Taxi driver requires some other form of documentation?
Like door-to-door salesmen? Pizza delivery drivers? Pool cleaners? Gardeners? Do they all need some sort of special licensing because they frequently deal with isolated and vulnerable customers?
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Actually driver training should be improved for everyone. Livery licenses are kinda pointless, but they do hold the drivers to a higher standard, unfortunately its only the standard that all drivers should be held to.
Out here you are required a special license. Seriously, i had to pay extra and take a written test for an E class license here in MO because its required for any for hire job in a non-commercial vehicle. I was delivering newspapers and later working as a courier, and since i can be ticketed for not having it, i figured the fee is cheaper than the ticket.
About time!
Look at that “average trips per car” graph. Jan. 2012 – Aug. 2014, from just under 1400 to just under 500. I think the old taxi guys nailed that. That’s hardly a surprise.
$872,000 just to get into the market?!? That is one primo protected market! We talk about how disrupting old ways makes it possible for new people to compete in old markets? Well, this is exactly what we’re talking about. Once you had a medallion (though they were often owned by cab companies, not mere drivers), you had it made in the shade. When the medallions are owned by cab companies, that’s a lot of power to hold over prospective drivers, producing a breeding ground for corruption and kickbacks.
Uber and Lyft and foreign megacorps aside, this is one market crying out for disruption, and it has been for a long time.
Medallions aren’t the problem, its the limit on supply. I worked in Phoenix, which has limited emissions testing for vehicles and no safety inspections (personal or business, at least the small stuff). A taxi company there that offers the lowest prices runs a fleet of boxy old Caprices, most picked up for $500 or $600, with a preference for crashed ones. They straighten the frames themselves, slap a coat of paint on it and put it on the road. Most drivers are ex felons, and many of the cars have to be steered to go in a straight line. That’s what you get in a fully unregulated market.
Now, a smart system would be to sell medallions that indicate that the vehicle has been safety certified and also license livery drivers without limiting the number of medallions nor controlling fares. That way you get a safe car at a reasonable price.
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Ex-felons have right to reintegrate into society. Or they will turn into ex-ex-felons.
To increase road safety, have obligatory and specified safety checks for cars: check for steering, braking, lights, exhaust, wipers, rust.
As government, inspect the private inspectors.
This system works very well, an inspection can be had at 20 euros per year.
No medallions needed.
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Sorry, got a bit over the top in showing the opposite extreme, you’re quite right about the ex-cons (ex-felons i might be more worried about).
That said, the main point is that medallions make sense to indicate that the vehicle is approved for use having been inspected to insure all standard and specialized equipment work. Think of it as a near permanently attached inspection sticker, dunno about NYC’s, but Las Vegas rivets them to the left rear fender.
Nothing wrong with certifying the car and the driver, as long as the price isn’t artificially inflated. Uber and its ilk are like the PHX market, effectively unregulated, while taxi companies are typically a government run monopoly. Hitting something in the middle would be the best solution, but since both are in it for the money, neither will offer that.
From Medallion to Tax and Minimum Wage Employment.
At this point, the sensible thing for a medallion owner to do would be to try to launch a “takings” case, that is, to argue that for the city to come to a composition with Uber is a taking of the value of the medallion, which must be compensated. The de-facto policy of most cities, on reflection, is that Uber isn’t going to go away, and the thing to do is to work with Uber to upgrade its insurance, traffic safety, driver vetting, etc. A reasonable measure might be for the city to buy back all the medallions. There should probably be some kind of formula enabling bona fide owner-drivers, with bank loans for their medallions, to compound for loan retirement and pensions on comparatively advantageous terms. The cost of this buy-out would be funded by a system of taxation, charging so much a mile for driving in the central business district, so much for the uptown district, so much for the suburbs, etc. The city does not normally attempt to limit the number of storefronts which are turned into eateries. It accepts that there are certain blocks which are properly about a hundred percent restaurant. The restaurants pay taxes sufficient to fund a system of health and safety inspectors.
One big issue is that taxicab drivers are not exemplarily skilled. Lots of people can drive a cab. There have been special cases, such as the City of London’s practice of setting an examination on the geography of a medieval city (“these ruins are inhabited”), but this skill has been liquidated by GPS devices. Driving a cab is not a job that anyone with an honest million dollars at his disposal would choose to take. Given the ability to perform close supervision from a distance by electronic means, driving a cab is a minimum wage job, just the same as working in a McDonald’s on the ground floor of a downtown skyscraper. That is more or less unavoidable. Cab companies will exercise their right of ownership to install the kind of systems which Uber has introduced, so that they know exactly where a cab is, and how much money it is making, and deal directly with the customer. Most customers don’t seem to be particularly uncomfortable about putting their taxi bills on the plastic (via an ATM machine in the back seat), or on the cellphone, as the case may be. Likewise, the police are going to insist on some kind of camera which automatically makes a record of all traffic violations, and whose recording can be reviewed by someone in India, in short a system which forces the driver to drive “sedately.”
The probable result of the medallion in this regime is a system of the worst kind of rentier-ism. There are certain reasonable limitations which can be set, such as insisting that a minimum-wage worker be paid a minimum wage, rather than having to pay a hundred dollars per hour rental on his workstation, and then try to make a slight net surplus over that, say gross receipts of $110 per hour, and sometimes only making gross receipts of $97 per hour, and having less than nothing to show for his day’s work. Such practices savor of the “company store,” and debt-slavery.
“And, for all the stated fears from the old taxi guys that a glut of new entrants would drive away business,”
So basically, taxi companies freely admit that the only reason they exist is because of competition-reducing laws. In a free market, similar to an animal in the wild, you either adapt or perish in response to changing conditions.
No alternatives
Some places Uber operates, eg Australia, have no alternative ridesharing operations.