Question

In New York, which has the largest ride-for-hire fleet in the United States, licenses have been issued for 13,437 taxicabs. There are an estimated 42,000 drivers in the city, with a licensed vehicle being used by two or three drivers a day. In 2014, only 6% of cab drivers in New York were born in the United States, and 36% came from Bangladesh and Pakistan. The New York taxi fleet picks up 600,000 passengers per day. An estimated 25,000 livery cars provide for-hire service by prearrangement and carry 500,000 passengers per day. 10,000 “black cars” provide services mostly for corporate clients.

Regulators have long required that taxicabs available to be hailed on the street be licensed. The license is to ensure that the taxi service is safe and reliable, and that fares are fair. For-hire vehicles must be insured to cover drivers and passengers, meet safety standards, and (if taxicabs) have a sealed meter. Regulations also require that licensed cabs be quickly and easily identifiable. This is normally achieved by a distinctive color (e.g., yellow). Cabs must also display whether or not they are in service.

Taxicabs charge a regulated fare, set by a government agency, based on the time and distance of the trip, as measured by a meter. Some trips to and from established destinations, such as an airport, may have a fixed price and will displayed in the cab. Taxicabs are required to carry standardized meters that must be prominently displayed, are sealed and periodically checked to ensure that the proper fare is being charged. Limousine services are generally prohibited from charging fares based on time and distance, and they do not carry a meter. Typically, fees are based on time, often with a minimum billed time. The fee normally has to be agreed on in advance.

In many jurisdictions the licensing system limits the supply of taxicabs. One common variant of licensing is the medallion system that is used in cities such as New York, Boston, Chicago and San Francisco. Medallions are small metal plates attached to the hood of a taxi certifying it for passenger pickup throughout a defined area (normally metropolitan boundaries). When the medallion system was first introduced in New York in 1937, the idea was to make sure that taxi driver was not a criminal luring passengers into his vehicle. To get a medallion, the taxi service has to adhere to the regulatory requirements in that jurisdiction and be approved by the appropriate regulatory agency. Medallions may be given to individual taxi drivers who own their own cars, but more typically taxi companies that own fleets of cars acquire them. The taxi companies then lease cars and medallions to drivers on a daily or weekly basis. In some locations the driver may own the car, but lease or purchase the medallion from an agent who has acquired it. An example would be Medallion Financial, a publicly traded company that owns hundreds of medallions in New York, sells them to aspiring young cabbies, and arranges for loans to finance their purchase.

In cities that utilize a medallion system the supply of medallions has often been limited. The rationalizations for doing this include ensuring quality, guaranteeing a fair return to taxi companies, and helping to support demand for other forms of public transportation, such as buses, trains and the subway. It has also been argued that limiting the number of cabs helps to reduce congestion and pollution.

In practice, the supply of medallions has often not kept pace with growing population. In New York, Chicago and Boston for example, the number of medallions issued has barely budged since the 1930s. In New York, there were 11,787 medallions issued after World War II, a number that remained constant until 2004. By 2014 there were 13,437 medallions issued in New York.

Medallions can be traded. Thus, over time, a secondary market in medallions has developed. In this market, the price is not set by the agency issuing them, but by the laws of supply and demand. The effect of limited supply has been to drive up the price of medallions. In New York, taxi medallions were famously selling for over $1 million in 2012. In Boston the price was $625,000. In San Francisco the price was $300,000 and the city took a $100,000 commission on the sale of medallions. The average annual price of medallions surged during the 2000s. In New York, prices increased 260% between 2004 and 2012. The inflation adjusted annualized return for medallions over this time period in New York was 19.5%, compared to a 3.9% annual return for the S&P 500.

As noted above, drivers often do not own the medallions. There are three players in many taxi markets: the medallion holders (often taxi companies) who have acquired the right to operate a taxi from the regulatory agency, the taxi driver, and taxi dispatch companies. A taxi dispatch company is a middleman or broker, who typically matches available cabs with customers and takes a fee for its scheduling services. While an individual taxi driver may own a medallion, most often taxi companies own them. Tax companies own a fleet of cabs, which they lease out to drivers (with a medallion). A minority of drivers may own their own cab. In New York, about 18% of cabs were owner operated in 2014, putting most medallions in the hands of taxi companies.

In New York, regulations allow medallion owners to lease them out to drivers for 12-hour shifts. The critical problem facing a driver is that they must get access to a medallion in order to make a living. Due to this, companies that own medallions can extract high fees from drivers. There are also reports that some taxi dispatch companies use their position as schedulers to extract payment in the form of bribes from drivers in return for good shifts.

Drivers, who legally are viewed as “independent contractors”, can begin a 12-hour shift owing as much as $130 to their medallion leasing company. They may not break even until half way through their shift. One consulting company report found that in 2006 a driver’s take home pay in New York for a 12-hour shift averaged $158. In 2011, the New York transportation authority calculated that it was $96. A study of taxi drivers in Los Angeles found that drivers worked on average 72 hours a week for a median take home wage of $8.39 an hour. The LA drivers were paying $2000 in leasing fees per month to taxi companies. None of the drivers in the LA study had health insurance provided by their companies, and 61% were completely without health insurance. Given the compensation, it is perhaps not surprising that some drivers can be rude, impatient, and prone to drive fast and take poor care of their cabs.

The LA study noted that because city officials heavily regulate the taxi business, taxi companies are active politically, paying lobbyist to advocate their interests and contributing to the campaign funds of local politicians. The same is true in New York, where the medallion owners trade association, the Metropolitan Taxi Board of Trade, lobbies hard to influence public policy. In 2011, for example, medallion owners were initially able to block plans to create a fleet of green “Boro” cabs to serve New York’s outer boroughs. They argued that doing so would drive down the price of their medallions. In June 2013, however, the New York Supreme Court overruled lower court rulings and allowed the licensing of Boro cabs to go ahead. The intention now is to issue 18,000 new licenses to green cabs. These cabs, however, will not be able to pick up passengers in lower Manhattan, which remains the territory of yellow cabs.

Analyze the competitive structure of the taxi market such as New York prior to the introduction of Uber?

Answer 1

Answer:-

Prior to the introduction of Uber, tappeare

The competitive structure of the taxi showcase in significant metropolitan market, for example, New York was fairly divided yet was to a great extent constrained by the open taxi operators who charged a higher passage because of their imposing business model in the taxi advertise and less alternatives accessible to the overall population to drive starting with one spot then onto the next.

There were no significant competitors, thus taxi costs were to a great extent constrained by these open taxi operators and they used to charge more to the customers. This prompted higher disappointment rates among the travelers since they were getting cheated for the separation drove and required an adjustment in the taxi administrations being offered to them and the introduction of Uber came as a reprieve to them as the costs were balanced out after the online taxi aggregator appeared.

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