Privilege of Cartel Membership:Above-Mkt. Returns
Market Watch -- Medallion Financial Corp. (NASDAQ: TAXI), a specialty finance company with a leading position servicing the taxicab industry announced that earnings, or net increase in net assets resulting from operations was $2,832,000 or $0.16 per diluted common share in the 2008 fourth quarter.
MP: The NYC taxi industry is also insulated very well from competition, since it operates as a cartel with legal restrictions on entry. According to the NYC Taxi and Limousine Commission, the official name of the NYC Taxi Cartel:
In 1937, the number of taxicab medallions was limited to those that existed at that time. By the late 1940s, this number had settled at 11,787. Since 2003, State and local legislation has allowed the Taxi and Limousine Commission (TLC) to sell new medallions, bringing the current total to 13,150 yellow medallion taxicabs operating in New York City. A new medallion is a rare opportunity.
MP: Yes, a rare opportunity to join a cartel with significant barriers to entry. And cartel membership does have its privileges, including above-market rates of return (see chart below). Since January 2004, the price of NYC taxi medallions has increased 2.6 times, while the S&P500 has declined by 28%.