The Economics of Anti-Consumer, Protectionist Taxi Cartels: $624-850,000 for a NYC Medallion
The "priciest piece of aluminum in NYC" - a taxi medallion that is required to operate a single cab in NYC - reached a new record-high of $624,000 in December for an individual medallion (see chart above, data here), more than double the average price for a medallion in 2004. The average price for a corporate-owned taxi medallion reached a new record high of $850,000 at the end of last year. Here's a classic article about taxi regulation from Jeff Jacoby, written back in 1995 when the NYC medallions were selling for only $140,000:
The taxi business, after all, ought to be a model of free enterprise. There are plenty of buyers (passengers), plenty of sellers (drivers), and no barriers to entry beyond the price of a car. If it weren’t for government interference, the laws of supply and demand would govern the taxi trade with almost frictionless efficiency: Cabs would be plentiful, fares would be reasonable, and service would be available nearly everywhere it was wanted.
But governments do interfere. Taxi owners routinely get the state to kill their competition. “London’s first recorded taxi war, in 1636, did just that,” the Economist recalled some years ago. “Sparked by the resentment of Thames water taxis at growing competition from coaches on land, it led to a proclamation from King Charles I restricting the number of coaches to 50. Lucky coachmen were happy. Watermen were happy.” But customers got gypped.
A lot of medieval practices have been junked since 1636, but protectionist taxi regulations aren’t among them. Nearly every major US city (and thousands of smaller ones) chokes off access to the taxicab market. Exactly 11,797 taxicabs, for example, are permitted to operate in New York City — a figure that hasn’t budged since World War II. FDR was in his first term as president when Boston decreed that only 1,525 cabs would be permitted on its streets. Other than a few new medallions for wheelchair taxis, 1,525 remains the limit.
The results? Right out of Econ 101: The supply of taxi medallions is far lower than the demand, so their value long ago exploded to obscene levels. Today, the going rate is about $140,000 in New York; about $90,000 in Boston. Those who got medallions when the getting was cheap grew rich. Everyone else got shafted. Would-be cabbies are forced to choose between going deeply into debt to buy a medallion or paying murderous lease rates to somebody who owns one. “In essence,” write Chip Mellor and John Kramer of the Institute for Justice, “cab drivers become urban sharecroppers.”