Question

In order to operate as a taxi driver, drivers must obtain limited ‘medallions’ issued by the city. These permits are very expensive, in some cases costing about $200,000. In addition, drivers and their vehicles must meet costly safety requirements that cut into their profits. With the advancement of smartphones, people can now request a driver to take them from point A to point B. These drivers use their private vehicle to operate like a taxi.

Compose a short essay in which you address the following questions"

1. Distinguish between a competitive market (i.e. perfect/monopolistic competition) and a non-competitive market (monopoly). What characterizes each market structure? What are some positives and negatives about each? In the case of taxis, what are the barriers to entry?
2. According to the articles you read, what are the arguments provided by taxi drivers for why ride sharing services need to be monitored? What do ride sharing services such as Uber and Lyft argue in defense?
3. In your opinion, should ride sharing services be allowed to operate freely without having to meet the same requirements as taxi drivers? Or should the government step in treat Uber and Lyft like a taxi company and require them to bid for one of the limited ‘medallions’ in a city? Is this a case of unfair competition? Or unwanted competition?

Answer 1

                                    Competitive markets are defined as those markets where competition exists between the many firms that are in operation in an economy and the market factors of supply and demand and the pricing mechanism of a market would be determined on the basis of the competition between the firms in the economy. Here, it is thus clear that the firms in such a market are price takers rather than price makers which happens in a non-competitive or a monopoly market. A monopoly market has many distinguishing features like profit maximisation, high barriers to entry, single seller mechanism etc. The major disadvantage of such a market is that the consumer would have only a few options to choose from and thus the consumer would have to pay for the commodity even if they are not satisfied with it. Thus consumer satisfaction would be lower in such a market when compared with a competitive market mechanism. In a competitive market, the firms would be competent to each other and hence the consumers would have an advantage of low prices and higher options to choose from for the same type of a commodity in the market.

                                    As it is being given, the taxis have to obtain ‘medallions’ issued by the city and hence getting through such mechanism are expensive which would form a barrier to entry for the taxis in such a market. Moreover, the safety requirements that have to be met by the taxis would cut short the profits that are being made by them and hence would form another barrier for the taxis. With the introduction of services like Uber and Lyft, the taxis are facing serious competitions by the fact that they offer attractive lower prices which the taxis were not providing which have left the taxis in a spot of bother and have affected their revenue to a large extend. Since the new company depends on the online networking mechanism and makes use of private vehicles for the service rendering, the cost of their operation is much lower which makes them possible to offer services at lower costs. Thus, taxis are making frequent complaints as to regulate and monitor the functioning of similar companies so that they are not affected to a great extent. But the companies like Uber have not violated any policies of competition and thus states that they should be allowed to continue their operations.

                                    The introduction of new modes of services in the taxi services have indeed created certain difficulties for the old taxis in the market. Although it is not advised that the imperfect competition is not to be allowed and the balance in the competition is to be maintained, the operators that operates according to the rules and does not violate the existing competitive mechanism could not be curtailed from their operations. But proper monitoring of the services should be always done so as to make sure that the competition rules are always maintained and if required, they must be open to the bidding purposes in the future.