The chart above shows the cumulative percentage increase since January 2004 for: a) New York City taxi medallions and b) the S&P 500 Stock Index. Here’s a summary:
1. The market value of NYC taxi medallions have increased from $241,000 in January 2004 to $1,050,000 last June, where the value has remained flat for the last ten months through March. That’s a cumulative return on investment of 336% over the last decade for owning a taxi medallion, and an annual return of almost 16%.
2. In comparison, over the same ten-year period, the S&P500 Stock Index has increased only 64.5% in total, and by only 5.1% per year. If $241,000 had been invested in the S&P500 in January 2004 (instead of purchasing a NYC taxi medallion then) that investment would have increased in value to only $396,445 today, or about $654,000 less than the current $1,050,000 value of a NYC taxi medallion.
Q: Why has an investment in a NYC taxi medallion generated an annual return on investment (15.9%) over the last decade that is more than three times greater than the annual return on the US stock market (5.1%)?
A: The NYC taxi system is operated like a classic cartel that in this case involves restricting the supply of taxis operating in the city, which limits competition and raises prices above market-determined levels, and generates above-market profits and returns for medallions owners. As BloombergBusinessweek explained it recently, “The underlying value [of a medallion] rests on the fact that there are fewer cabs than people who want rides.” In fact, there are fewer NYC taxi medallions today (13,605) than there were in 1937 (16,900) when the medallion system first created the NYC taxi cartel.
As you can imagine, since the value of taxi medallions (and the profitability of a taxi cartel) can only be supported by artificially restricting competition, the taxi cartel is not happy about the new competition from app-enabled ridesharing services like Uber, UberX, Lyft and Sidecar. That increasing competition from ridesharing services in NYC may explain why, for the time in at least a decade, the auction value of a NYC taxi medallion hasn’t increased now for almost a year. And the taxi cartels, and their government enablers/enforcers, around the country are fighting back.
Here are some excerpts from a long essay in Daily Tech titled “Cities to Carpoolers: Sharing Your Car is Illegal, We Will Seize Your Cars,” which summarizes some of the battles around the country between the new ridesharing services and the taxi cartels:
The U.S. isn’t exactly a “free market” at times, with outright bribery — condoned by the U.S. judicial system — or collusive public-private cartels leading to some products and services being banned from the market. Just ask Tesla Motors Inc. (TSLA) whose electric vehicles have been banned from sale in many states. That debacle arose due to the fact that Tesla has no dealerships and fearful dealership lobbyists banded together to pay off state politicians to ban direct auto sales.
Now the same principle is being applied to stymie the emergency of another set of companies in the transportation sector — cloud-driven ride-sharing services.
Ridesharing — also known as carpooling — involves members of the public contacting each other via a smartphone or PC internet networking service and arranging to ferry each other to various destinations for fees. The practice in informal form is almost as old as the automobile itself, but in the digital age app-enabled ridesharing has seen an explosion in interest, threatening the commercial taxicab industry and the city officials who depend on that industry for revenue.
All of the ride-sharing companies operate on the same principle, claiming that their fares are “voluntary” and admittedly fluctuating based on supply and demand. Because they aren’t charging rigid rates, they claim they are not subject to local ordinances in various cities that require taxicabs to pay per-cab tolls to city transportation departments/agencies.
Cities transportation agencies are pretty upset about not getting their cut of the pie. They’ve circled the wagons in many jurisidictions, backed by the traditional taxicab industry who views these disruptive new players as an unlawful threat.
After reviewing the increasing trend towards imposing more and more restrictions on ridesharing services around the country in California, Philadelphia, Minneapolis, Seattle, Las Vegas, Washington, D.C., Austin, and Boston, the author Jason Mick comes to this pretty depressing conclusion about the future of ridesharing in America:
In short, the number of cities where paid carpoolers can legal operate is dwindling at an alarmingly rapid rate. At this point quite literally the risk of carpooling is becoming that you will get your car impounded/seized and be forced to pay steep fines.
Ride sharing and carpooling for pay in the U.S. — once a booming field of dreams — has been methodically shut down and beaten back by the loving hand of government regulators and taxicab industry. Thanks to those cartels, this once thriving sector is now on the death’s door, as the nation’s top cities approach a ubiquitous ban on sharing.
MP: I’m somewhat more optimistic about the future of app-driven ridesharing. The “ridesharing genie is out of the bottle” and too many consumers in too many cities have “gotten a taste” of the convenience and affordability of ridesharing services like Uber and Lyft, and they’ll never want to go back to the traditional taxi cartel model. Hopefully, too many people have figured out by now that the traditional taxi cartel model is a total consumer rip-off, and is an outdated form of business that won’t survive the power of app-enabled consumers who will demand service, affordability and the convenience that taxi cartels can’t deliver. We’ll know that taxi cartels are losing power when we see it reflected in stagnant or falling taxi medallion values, and we may have already seen that starting to happen in NYC. For example, over the last year from March 2013 to March 2014, the annual return on a NYC taxi medallion at 14.5% was less than the 20.1% annual return on the S&P500, and that has almost never happened before. Expect the app-enabled “creative destruction” and “collaborative consumption” of ridesharing to continue and thrive.