Term Paper on "Demand and Supply of NYC Taxis"

Term Paper 8 pages (2320 words) Sources: 6 Style: MLA

[EXCERPT] . . . .

Corporate medallion prices are also apparently flat at $1,320,000, having remained unchanged for nearly a full year. This is perhaps similar to the price plateau at $1 million for the period of 2011-2012. Medallion values on the market are literally amazing. One taxi driver from NYC purchased his taxi medallion in 1977 for some $30,000, and sold it thirty years later for $600,000, a clear-cut profit of $570,000 (Cumming). As shown in figures above, medallion prices have risen to over twice their value just since 2000, and the current price-plateau is not expected to last (Cumming). Clearly the market for taxi-medallions is incredibly active, and shows no sign of becoming inactive (Cumming).

The financial power of taxi medallions rests in their relative scarcity (The Tyranny). This scarcity of course results in pricing the medallions out of the reach of the ordinary cab-driver, putting him back at the mercy of a dispatcher, who may have to be bribed for the driver to receive dispatch calls and/or even receive a vehicle, as well as being at the mercy of the medallion owner and the taxes and fees before the driver even picks up a single customer. There are now secondary markets for medallion sales as well, and prices vary according to the metropolitan area. Typically, NYC, Seattle, Boston, San Francisco, Chicago, and other such cities limit the number of medallions available for purchase, with this number remaining fixed for a period of years (The Tyranny). There are only as many licensed taxi-cabs as there are medallions, and the limitation of medallions limits the numbers of taxis available. When city populations are surging, a limited number of medallion-taxis means insufficient rides for the populace. In 1937, the year medallions were introduced in NYC, 11,787 medallions were issued; now, over 70 years later, this number has only risen by some 2,000 medallions (~13,000), and the privilege of driving a taxi has become a very valuable commodity (The Tyranny). This situation, with increased demand, and fixed supply, has resulted in a huge boom in the cost and value of medallions to well over $1 million per annum.

An anonymous survey of drivers working for a company called 'Instant Cab' provided the data shown in the Figure below. This bar graph illustrates monthly take-home earnings for ten drivers, working approximately the same total hours. There is a clear-cut difference in earnings between the drivers considered amateurs and those considered professionals (The Tyranny). The income range is actually fairly wide, from a low of approximately $24 thousand per annum, to a high of roughly $72 thousand, based upon extrapolating the Table data out to twelve months at the same take-home pay rate.

One important way in which government can assist with the taxi-cab business is to ensure safety of taxis as well as safety for the passenger. Safe and efficient transportation is a definite public asset; scarcity of taxis is actually a detriment to the public. One intent of the original creation of the medallion system was to ensure safety of the consumer by ensuring safety of taxis (The Tyranny). While a focus on safe drivers is an important aspect not only of the taxi-cab industry but also of the novel start-ups such as Uber and its clones, once public scrutiny wanes this focus on safety may shift and/or become far more lax. Clear-cut regulation of safety should be implemented, through a system to review and report drivers, report driver incidents, and obtain background checks on drivers (The Tyranny).

Yet another area of the NYC taxi-cab situation where governmental intervention could be helpful concerns driver protection against what is called 'platform lock-in'. This is of course applicable to other large metropolitan areas. Drivers are only permitted to work for a single company, that from which they have leased or rented their cab. Studies from individual researchers who have worked as taxi-drivers 'under-cover' demonstrate that the taxi-dispatch may have unwonted power, and often exercise this unfairly, requiring 'bribes' from drivers to even get a car, much less find passengers other than what are known as 'street hails'. These data clearly indicate that the taxi system is not a free market.

The debate over monopoly in taxi business brings to light the fact that in this industry there is a definite monopolistic trait in NYC. The underlying reason is the directly proportionate increase in ridership that taxis experience with increase in gas and oil prices. The statistics that results from independent research studies as well as the APTA-member systems that have a hands-on experience of ridership both emphasize the same conclusion (APTA, 2011).

Consider a comparative study of projections between gas prices and corresponding fluctuation in ridership to begin with. It is projected that if the gas prices were to top $6 per gallon there would be a corresponding increase in ridership to the tune of about 12.9… READ MORE

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