Many cities (and airports) have official taxi monopolies. They limit the number of cabs in the city, and regulate them, typically by issuing “medallions” to cabs or drivers or licences to companies. The most famous systems are in London and New York, but they are in many other places. In New York, the medallions were created earlier in the century, and have stayed fixed in number for decades after declining from their post-creation peak. The medallion is a goldmine for its “owner.” Because NY medallions can be bought and sold, recently they have changed hands at auction for around $300,000. That 300K medallion allows a cab to be painted yellow, and to pick up people hailing cabs in the street. It’s illegal for ordinary cars to do this. Medallion owners lease the combination of cab and medallion for $60 to $80 for a 7-9 hour shift, I believe.
Here in San Francisco, the medallions are not transferable, and in theory are only issued (after a wait of a decade or more) to working cab drivers, who must put in about 160 4-hour shifts per year. After that, they can and do rent out their medallion to other drivers, for a more modest rental income of about $2,000 per month.
On the surface, this seems ridiculous. Why do we even need a government monopoly on taxis, and why should this monopoly just be a state-granted goldmine for those who get their hands on it? This is a complex issue, and if you search for essays on taxi medallions and monopoly systems you will find various arguments pro and con. What I want to get into here is whether some of those arguments might be ripe for change, in our new high-tech world of computer networks, GPSs and cell phones.
In most cities, there are more competitive markets for “car services” which you call for an appointment. They are not allowed to pick up hailing passengers, though a study in Manhattan found that they do — 2 of every 5 cars responding to a hail were licenced car services doing so unlawfully.
Some of the reasons cited for the taxi monopoly are as follows:
- Without it, taxis would flood the streets, congesting them, wasting fuel.
- With too many taxis, wages for drivers would become unlivable.
- Regulation is necessary to control rates and assure public safety.
- Because you can’t shop for a taxi when hailing one, there is a market failure, and rates must be controlled.
Point #2 is fairly weak. The medallion systems simply provide money to the medallion owners. They continue to hire drivers, mostly immigrants, for as little money as they can get away with. Even so, there is a shortage of drivers in many places, indicating market forces set the minimum wage, not regulation. Drivers in the competitive limo industry tend to make similar money, premium ones do better. When New York raised taxi rates, some of the new money went to drivers, but a fair bit went, for no good reason, to medallion owners, who of course increased the lease rates and resale prices of medallions as much as the market would bear.
Point #1 is best left to more detailed essays. Point #3 about public safety makes some sense — you want to be sure your driver is safe and the vehicle is maintained. You also want to be sure your driver has not been awake forever or impaired. Right now it’s hard for market forces to deal with that.
The issue I really want to deal with is the potential for moving away from the “hailing” system to something that allows markets to work better. In particular, I refer to various proposals for cell phone (and pay phone) based hailing, where one calls a Taxi number, and provides one’s location and destination, along with other preferences that may stored in a profile. Your phone may transmit your location for you based on its own GPS, but saying it to a computer or human is pretty quick.
Such a system would tie to a network of GPS-linked taxis, and if it could allocate from all suitable (independently contracting) taxis in the city, should be able to assign you a cab that is very close and will come to you in seconds — at a similar wait time to hailing on all but the busiest streets, and much faster on lesser streets. The cab driver could be provided with your location, and a picture or description of yourself — perhaps taken by your cell phone camera to show you on the corner you’re standing on — so they can identify and pick you up quickly.
There is a potential for more serious optimization when the destination is also provided, since the system can allocate the right taxi for such a trip, or for the size of a party or how much luggage it has. The largest optimization here is the creation of “jitney” style service, where taxis take on other passengers along the route, with zero or minimal diversion from any given passenger’s optimal route, yet at substantial savings. A reputation system for passengers could assure the public of the safety of this.
It could also make possible even more efficient jitney service with jitney transfers. You might find the system suggesting you step out to a different waiting taxi going along your route. Again, the savings could be substantial with minimal waits and minimal diversions from one’s optimal route. Combinations of vans, buses, private cars and even public transit could arrange a smooth no-wait trip.
Key here, however, is the customer’s ability to choose what taxi company to call to set up a trip. That company in turn might own cabs, or simply contract with and certify subcontractor cabs. (For all companies it remains important that they offer you the largest possible acceptable fleet to assure a vehicle will be near you when you need it.)
If you choose the company, you can competitively shop and negotiate for quality and rates. And thus, subject to minimum standards for public safety, these things would be set by a free market, as would driver wages and company profits.
This seems to me a big win over the monopoly system, and it might convert many users of private cars, or purchasers of second cars, to much more taxi use. That’s a win for everybody as it eliminates parking load, and jitney travel actually removes vehicles from the streets. Cities with “central district congestion fees” like London might find market forces pushing for this quickly. It may also make sense to encourage most taxis to be clean vehicles, either hybrid or all-electric with some system for quick battery-swap at a taxi depot. Hybrid already makes a lot of sense, since hybrids do not have to idle while sitting waiting for a fare.
It’s even possible our high tech mobile internet world can even make a driver’s waiting times be productive. One could imagine a laptop/cellphone station in a taxicab that would allow waiting drivers to do certain types of short-piece jobs — including taking locations and destinations from customers calling in — and make money full time.
One unsolved problem is long commutes. Taxis don’t do as well when everybody wants a long trip in the same direction. However, this system allows price negotiation, including having higher prices for certain times or types of trips. That’s much harder in the current systems though most of them have an added night fee. Prices in this system can adjust to something reasonable for the market. If a commute ride back to the suburbs means no fare for the return trip, this can factor into the price. Trains plus taxis may be the best commute answer. An efficient taxi service solves the train commuter’s problem of what to do if they have to leave outside of commute hours, where trains are infrequent or even totally absent. Instead of being faced with a $90 taxi fare, a late commuter might find a $15 or less jitney fare, with transfer right to their door.
It is true that not everybody has cell phones, including some of the poor who can’t afford cars and are most in need of a taxi. I think that’s changing, and low use cell phones are getting cheap enough that nobody need be without one. Taxi companies could even snap up recycled cell phones and make deals with cell carriers to allow them to be used only to call the taxi company and emergency services, billed on a per-use basis and factored into the fare. The supply of small, recycled phones is already sufficient for this. Those caught without, who can’t borrow would have to find a pay phone. Those are dwindling of course but still around. Finally, there’s no reason they could not still hail a cab — but they would get no ability to shop, and have a slightly longer wait of it.
There are privacy concerns here, as there would be far less anonymous taxi travel in such a system. That’s not inherent — companies could promise to erase records and just store a good reputation beside an ID not necessarily linked to your name. One could enter such an ID when calling in, and pay in cash. However, I fear that’s not how people would design it. It might however, be worth some privacy risk to avoid the problems of the monopoly. If you transmit a picture you can be identified for pickup without providing your name. The picture can be used to trace you with work, but can’t be used easily for routine tracking if it’s changed regularly. I would certainly encourage such privacy-friendly designs.
A cell phone hail system has another major benefit. Cabs need not roam the streets at all. Computers would forecast demand, and cabs would travel to selected spots and park. The driver could do telecommute work while parked until a hail comes in. This would vastly reduce emissions from taxis driving around looking for a fare. If somebody has figures on how much time a typical taxi spends driving empty, burning gas and congesting the streets in search of a hail, this might produce a very compelling green argument against hailing.
Update: Let me add some additional thoughts that have come from the comments
- Computer pricing can be based on the most efficient route or shortest path route to your house, rather than miles driven. This allows the driver choice or use of faster or more efficient highways without it costing more.
- Taxi companies can make use of GPS and other information to track live traffic patterns and route you even more efficiently.
- Knowing destination allows mixing in a package delivery business (without the passenger even knowing this is going on) for real savings and profits.
- Destinations will often be known in advance, allowing for sophisticated planning.
A final note: If cities still think they must have a quota on the number of cabs, instead of having medallions which bring in money for the holders, they should switch to dutch auction of the medallions on an annual basis, putting the money into city tax revenue to pay for roads and transit.