And the Medallion goes to … the Taxicab Monopoly! | Citizens Against Government Waste

And the Medallion goes to … the Taxicab Monopoly!

The WasteWatcher

Buried in the bleak history of the Great Depression can be found the beginning of the end for the iconic “Yellow Cab.”  With unemployment at a staggering 18 percent in 1938, the working class scrambled to find ways to make ends meet.  Driving taxicabs became the only choice for many.  This influx of drivers quickly swamped the market.  Before the Depression, there were 84,000 taxicab drivers in the US.  By 1932, almost double that amount (150,000) were driving cabs.  New York City Alderman Lew Haas introduced legislation to regulate the number of cab licenses in the over-saturated market.  The Haas Act, once considered to have protected the market, now spells its doom.  If taxi companies resist deregulation, they may not survive the threat of innovators like Uber and Lyft.

The Haas Act of 1937 instituted a “medallion system” to regulate the number of taxi operators.  Medallions are licenses given by the Taxi and Limousine Commission, and they allow vehicles to operate as taxis.  Each medallion allows the owner to operate only one taxi, but a number of people have purchased several medallions in order to corner the market.  Over the years, the medallion system has spread from New York City to other major cities around the country.  The number of acquirable medallions in New York City has fallen from 16,900 medallions in 1937 to 13,237 in 2009.  This constriction seems counter-intuitive, in the face of demand for service that accompanied increased urbanization and population growth.

Taxi businesses have successfully lobbied to limit the number of medallions for their own benefit.  The taxi companies have used their influence to sway politicians in favor of their monopoly.  Ironically, this monopoly has left the taxi companies with no incentive to innovate or improve their services, rendering them vulnerable to market forces.  Coddled by this lack of competition, taxi operators have made insufficient effort to be more responsive to customers, who are often frustrated by the difficulty of getting a cab, among other issues.

Enter Uber and Lyft, who employ technology (such as GPS) that is available on virtually any smart device to electronically “hail” a driver at any time of the day (or night).  Where the taxi industry has failed, Uber and Lyft have succeeded.  Through the use of rather commonplace technology, these companies have been able solve a problem that taxis have grown complacent about.  

But state and local governments distort the market potential by limiting these business models.  These arbitrary regulations weaken the profit potential for rideshare providers, making overall services less convenient for the consumer.  Ironically, the city of Austin, Texas, which has carved out a reputation as an incubator of technological innovation, has opted for burdensome regulations to drive out Uber and Lyft.  There, taxi companies and their allies forced protectionist requirements, such as the fingerprint scan, for non-taxi drivers, while exempting cabbies from such added scrutiny.  This is a shortsighted sop to the status quo.  The government should foster, not inhibit, competition to advance the conditions of consumers, as opposed to limiting opportunities for drivers and options for riders.

  -- Jakob Zontine

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