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Cities Should Let Taxis Become More Like Uber, Not Stifle Innovation

By: Guest Contributor - Sep 25, 2017, 12:38 pm
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Superfluous rules and price caps have restricted entry and stifled competition. (FEE)

By David Kemp

The Rise and Fall of the Taxi Medallion

Since 1937, New York has required taxis to purchase medallions and has set limits on the number of these medallions. For many years, the artificial scarcity created by the limits—currently only 13,587 are available—pushed medallions’ price up to a peak of $1.3 million in 2014.  But the advent of ride-sharing and thousands more ride-hailing cars on city streets caused their value to tank, with 21 being sold in August for between $150,000 and $450,000 each.

Now owners are stuck with an asset worth less than half the peak price and, to make matters worse, some initially took out loans to pay for medallions or relied on revenue from leasing them for retirement income. As ride-sharing apps reduce hourly wages and lure away potential leasees, some owners are unable to make enough to pay the monthly interest or have been forced to postpone their retirement.

A similar dynamic has played out all over the country. While there is no question that the innovations of Uber and Lyft have caused medallion owners and taxi companies hardship, the misguided response of these groups has often been to call for increased regulation of ride-sharing services. They argue that Uber and Lyft have an unfair advantage because they do not have to follow the same regulations as taxis. As one taxi owner and spokesman for a medallion owner association stated, “We are not against competition, we are not against technology, but we want to compete fair and square.”

But the real answer for these owners is for cities to decrease existing regulations, not to create new ones. Superfluous rules and price caps have restricted entry and stifled competition. For the past 80 years, these regulations have served medallion holders and protected their businesses. Now that new services have been able to avoid them and offer more efficient alternatives, the rules are a hindrance to the same people they were created to protect. Walking back these regulations would allow traditional taxis to become more adaptable and to take the advantage of the same innovations that make Uber and Lyft so competitive.

The restrictions taxi owners support would instead limit the benefits that ride-sharing has created. The explosive success of Uber and Lyft demonstrates the negative effects of the cap on medallions. While there are only 13,587 medallions available, there are now 63,000 ride-sharing cars picking up passengers in the city, indicating that the medallion limit kept supply artificially low. More cars increase competition and lower prices for consumers.

Competition Is Good

More competition also incentivizes drivers to improve quality to attract customers. A study from the Technology Policy Institute found that the success of Uber in New York and Chicago coincided with a decrease in complaints per trip for taxis. In Chicago, “the data suggest that complaints about things a driver might do to affect quality—use of air conditioning, ‘broken’ credit card machines, rudeness, and talking on cell phones—all seem to have decreased along with Uber’s rise.”

Along with the benefits conveyed to customers, Uber and Lyft have also been popular with drivers. The flexibility of ride-sharing means that it can provide different opportunities for drivers with different needs. According to an Uber survey of its own drivers, 69 percent use their income from Uber to complement another full- or part-time job. And one-third of drivers said they drove to “to earn money while looking for a steady, full-time job.” The high turnover rate of the sharing economy indicates that jobs such as driving for ride-sharing services act as a way for younger people and people between jobs to transition to steadier, more traditional employment.

The drivers who rely on Uber as a full-time job for longer periods also benefit from the openness of ride-sharing. While the medallion system forced new drivers to lease taxis from owners and taxi agents, drivers are now able to drive their own cars and work their own hours. A 2016 Pew survey found that out of the 52 percent of online platform workers who said the income they earned was essential or important, 45 percent said they utilized the sharing economy because they need to control their own schedule and 25 percent said it was due to a lack of other jobs where they live.

Ironically, in 2013 the New York Times bemoaned the high price of medallions, stating that “the taxi industry has emerged as a striking example of how exclusive some corners of New York have become.” Uber, Lyft, and other ride-hailing apps have destroyed this exclusivity and given a wide range of people new opportunities. Giving in to the demands of medallion owners will perpetuate an oppressive regulatory system at the expense of customers and drivers.

David Kemp is a writer and researcher in Washington D.C. Follow him on twitter at @dkemp320. This article was originally published on FEE.org. Read the original article.