The supply of taxis is set by law to be below market equilibrium, or the point at which supply meets demand. Even then, the total supply of cabs does not change much, if at all. The only way in for a new company or operator (absent the government issuing new medallions) is if an existing medallion holder decides to sell his or her medallions. Medallion systems erect barriers to entry that protect existing taxi interests from competition. After factoring in the loan payments these drivers face, net earnings for owner-operators may fall considerably below minimum wage. ![]() Driver-owners face a steep down payment and long-term medallion mortgages that effectively lock them into the taxi business. Because of their high cost, medallions typically are debt-financed. Some cities have attempted to preserve the once-common driver-owner, who owns and drives his own taxi, by apportioning an allotment of their medallions for individual “owner operators.” The financial situation for these drivers is arguably worse. Any driver who balks at the high lease fees can easily be replaced by one that is willing to pay them. In Boston, about 6,200 cabbies compete to lease 1,825 medallions. In New York, more than 50,000 licensed drivers vie for the chance to lease one of the roughly 13,400 available medallions. These costs seldom decline, simply because there are considerably more taxi drivers than there are available taxis. In San Francisco, New York, and Boston, for example, drivers must earn roughly $100 per day (not counting fuel and other incidental costs) just to cover the cost of the medallion rental and break even. What’s Bad for Drivers… Under this leasing arrangement, each driver begins his or her shift owing money to the medallion owner. Effectively, medallion holders are guaranteed profits while bearing little or almost none of the actual costs or risks (which can be considerable) that are associated with driving a taxi. Whether a driver has a good shift or a bad shift, he still owes the lease fee. These leasing fees become the primary revenue stream for the medallion holder. ![]() ![]() Rather, holders may possess significant numbers of medallions and operate fleets of taxis by leasing those medallions to drivers by the shift. Few medallion holders actually drive taxis. ![]() It usually changes only when regulatory bodies decide to issue new medallions.Ī medallion is not a license to drive a taxi it is a license to operate one, and this is a critical distinction. The number of medallions, and thus the number of taxis, is tightly controlled and determined by political rather than market forces. Without one of these medallions, it is illegal to operate a taxi in cities with medallion systems. The basic element of a medallion system is the taxi medallion itself, a small metal plaque that is affixed to a vehicle. Many cities, including New York, Boston, and Chicago, operate so-called medallion systems whereby cities set a maximum cap on the number of cabs that can operate in the city. City officials treat taxi companies effectively as public utilities, tightly controlling every aspect of their operations, from the licensing of drivers to the fares they may charge. In most major American cities, the taxi industry is heavily regulated.
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