Carpe Diem

Uber/Lyft vs. taxis: Let the market decide, not taxi cartels and their government enablers — bureaucrats and legislators

taxiHoward Baetjer writes about Uber vs. taxis in his Freeman article “Value Creation vs. Regulation,” here’s an excerpt:

The benefits of free markets and the problems with government intervention are well illustrated by the unfolding story of smart phone-based car services such as Uber and Lyft. If we had free markets for city ride services….the preferred ride services—Uber and imitators—would thrive, and older, clumsier ways of connecting riders with cars would gradually disappear.

But we don’t have free markets for city ride services. Legislators and government bureaucrats have political authority to intervene in these markets. And the taxicab companies, whose profits—and even existence—are being threatened, are trying to use this authority to block or impede the creative destruction that is doing so much to improve the lives of city dwellers.

Note this well: The government’s authority to interfere in the business of city ride services, an authority ostensibly and officially meant to protect the public from inferior ride services, is being used in practice to impede public access to superior ride services. It illustrates the way government intervention is generally used: to benefit some special interest group—in this case the taxicab companies —at the expense of its customers and competitors.

What should be done? The markets for city rides should be set free. It is unfair to taxicab companies for Uber to charge market prices while taxis must charge what regulators decree. But the sensible response to this unfairness is not to burden Uber the way taxis are burdened, but to unburden the taxis and leave all ride services free to compete.

MP: As I’ve noted before, it’s important to remember that Uber and Lyft are already very heavily regulated ride-sharing services, and in some ways they are regulated even more intensely than traditional taxis  by a very ruthless group of regulators – the consumers who use their services. The issue really isn’t regulated versus unregulated ride services; the issue really is who is the primary regulator: a) government bureaucrats and legislators who are often captured by the regulated taxi cartels or b) consumers. And there’s no question that captured regulators almost always put the special interests of the well-organized, concentrated groups of regulated producers like the taxi cartel over the public interest of the dis-organized, dispersed thousands/millions of consumers.

Related: I’ve written before about how it appears that Uber’s presence in New York City is challenging the power of the city’s taxi cartel, and that challenge is being reflected in the fee to join the NYC taxi cartel – the market prices of NYC taxi medallions. The chart above shows the percentage increase since January 2004 in the auction-based value of the taxi medallion that allows an individual to operate a single taxi in the city’s heavily regulated protected market. A NYC taxi medallion that cost $241,000 in January 2004 is now worth more than $1 million ($1,045,000 in June 2014), reflecting a whopping 336% increase and an annual return on investment of almost 15%. In contrast, the S&P 500 increased by only 76% over that period, and has increased annually at a rate of only 5.4%. A $241,000 investment in the S&P 500 in January 2004 would only be worth about $424,000 today, less than half of today’s price for a NYC taxi medallion. As a recent Washington Post article pointed out, “Taxi medallions have been the best investment in America for years.”

But things have changed recently, since Uber and Lyft have started successfully challenging the NYC taxi cartel with price-cutting and intense “cut-throat” consumer-centered competition. As this Bloomberg article describes it, there’s been “an end to the dizzying rise” in the value of NYC taxi medallions, and you can see that in the graph above. In an unprecedented reversal of higher-than-stock market increases in medallion prices, individual NYC taxi medallion prices have been flat at about $1.05 million for the last 13 months starting in June 2013. Over the most recent 12-month period through June, the value of NYC taxi medallions have actually fallen by 0.56% from $1,051,000 to $1,045,000. At the same time, the S&P increased by 16.7%, and out-performed NYC taxi medallions as an investment over any 12-month period for the first time since at least 2004, and maybe for the first time ever?

Bottom Line: Expect more of this “creative destruction” in the ride service industry, and expect further declines in the value of NYC taxi medallions (and Chicago, Philadelphia and elsewhere) as Uber and Lyft challenge the taxi cartels.

HT: Warren Smith

 

10 thoughts on “Uber/Lyft vs. taxis: Let the market decide, not taxi cartels and their government enablers — bureaucrats and legislators

  1. But is not the real competition the car services (black lincoln etc), not the cab except when it essentially functions as a car service
    i.e. from or to the airport. The companies do not permit hailing off the street (which really only exists in Manhattan, or from cab stands)
    At least include the existing car services as part of the folks opposing, as they are really going to be
    the first ones hurt.

  2. But is not the real competition the car services (black lincoln etc), not the cab except when it essentially functions as a car service
    i.e. from or to the airport. The companies do not permit hailing off the street (which really only exists in Manhattan, or from cab stands)
    At least include the existing car services as part of the folks opposing, as they are really going to be
    Now of course airport trips are where cabs make the real money.

    • First follow the law, and run a lawful business operation, then pay your fees and taxes likes everyone else, only then we can call it a fair competition. Ride-sharing is now lawful, is not fair, and is not ethical to thousands of small transportation businesses that operate in the same exact market niche.

  3. Last Feb, I visited New Orleans for the first time. I scoped out the airport location and the hotel on the web. My taxi ride from the airport to the hotel didn’t seem right so I asked the cabbie if he knew where the hotel was. He said “sure” but, at that point, I decided to record his name, cab number and cab company. He dropped me off. I paid him and at the hotel, I researched the route he took. Turns out he doubled the length of the route.

    So I looked up the city regulator of cab services and described by email how I’d just been ripped off (welcome to New Orleans!) and I found the contact for the cab company and complained. The regulator suggested I contact the cab company.

    The cab company contact asked a few questions (e.g., did the cabbie use a GPS) and said he would research the matter. I thanked him for his follow-up and copied the regulator on my response.

    Over the next three weeks, the cab company contact bobbed and weaved and then said he’d send me a $30 dollar refund. Then nothing and no response to my follow-up emails.

    So I forwarded the thread to the regulator and copied the cab company contact with my message asking for regulatory intervention. Like magic, I got a response from the cab company contact and a check 4 days later.

    Yes, sometimes the consumers can be “a very ruthless group of regulators,” but for this situation, I needed a real regulator.

  4. If Mark would care to chart municipal revenue decline from regulated transportation, vs – offshore Uber’s
    corporation profits – he would see a one-to-one match.

    Ride-sharing is a fraud. It profits on a loss of municipal
    revenue that regulated transportation was generating.
    It’s that simple.

    To more theory inclined, this is the last ditch attempt
    to privatize whatever last sources of revenue our local
    governments have remaining.

    • So, the money is going into private profits instead of to the government? And you think that’s bad? Why do you think the government should get that money in the first place? My first reaction to your post was, why is the government getting the profits?

  5. Reserve the name “Taxi” to those that work under all the government rules. A customer can be assured that any car displaying the “Taxi” sign is a government regulated cab.
    All of the other cabs can use whatever name they wish and customers will know that the only rule is caveat emptor.

  6. A very appropriate perspective to consider that the consumers are regulating the rideshare business. The other side of the story is the drivers who also regulate the business in their own way. There is a community of rideshare drivers sharing their opinions and experience at http://uberpeople.net – check it out!

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