If you are encountering problems waiting for a taxi in NYC, DC, LA or other metro areas and find Uber UBER -1.1%/Lyft LYFT -3.5% prices absurdly high and wait times excessive, rest assured you are not alone. According to an NPR report, this is increasingly common.
During a recent visit to D.C. I tried to hail a cab to go to Union Station, but the hotel doorman told me not to bother and to use my Uber app. When I did, I was shocked that the ride cost $50-$60 before tip and the wait time was 30 minutes. When I eventually found a cab, the driver explained that cabbies were an endangered species because onerous regulations made it difficult for them to make a living.
Those traveling to NYC invariably find long lines of people at airports waiting for cabs with none in sight. Previously, fleets of yellow cabs were parked outside LaGuardia. A friend told me his son’s private equity firm stopped using apps because of the cost and long wait times. The firm now uses off-duty policemen as drivers because they are more reliable and can double park if necessary.
So, why is this happening and what can be done to rectify the problem?
Most people understand the shortage of taxi drivers is related to the Covid-19 pandemic when many drivers dropped out of the workforce as ridership plummeted. Unfortunately, there are no quick solutions, as many taxi drivers are reluctant to return to their former jobs because the money is too low to make a living.
Beyond this, most people do not understand how regulations of local taxi commissions compound the problem. According to a NY Times story, there were about 6,000 cabs on the road in June 2021, or less than one half of the total pool of 13,500 medallions, the city-issued permits required to operate a yellow cab.
Last year, NYC taxi drivers endured a three-month long encampment to demand a city debt-relief plan, also known as the “Taxi Medallion Crisis.” The protest stemmed from a dramatic plunge in the price of medallions that had fallen to $80,000 from a peak of nearly one million dollars in 2014.
The origins of the medallion crisis can be traced to 2004 when the Bloomberg administration placed ads in immigrant newspapers that read, “Do you want to own a piece of New York?” Fifteen years later, a NY Times investigation exposed a city-sponsored scheme to raise municipal revenue by manipulating the value of medallions substantially higher. It claimed that the agencies that were supposed to regulate the taxi industry helped to reshape it into a moneymaking machine that ultimately left many taxi drivers without recourse.
The Price of a NYC Taxi Medallion
The story for D.C., while less extreme, is one of a steady decline in taxi ridership since 2014, as well. Researchers at George Mason’s Mercatus Center in 2016 found that in a two-year period the share of business travelers using ridesharing services had increased to 46 percent from 8 percent, while only 14 percent used taxis. The report observed that “trying to open and compete as a taxi company in the District of Columbia requires more procedures than starting a small business in China, Venezuela, Mozambique, or Bolivia.”
The advantage companies such as Uber and Lyft have is they are not subject to the same regulation as taxis. It is easier to attract drivers because they can work whenever they want, and these companies can charge peak load prices whereas taxi fares are regulated.
My take is what is happening in the taxi industry is yet another example of “regulatory capture.” The term refers to the attempt by public institutions to protect consumers from monopolistic pricing by limiting prices that various entities can charge. What typically happens, however, is that the regulators wind up trying to protect the producers from new sources of competition but ultimately fail.
In the case of taxis, regulations meant that riders could not be charged different fares for the same mileage traveled, which was deemed to be “fair.” However, this approach failed to recognize the problem of peak load demand or the convenience customers prized for being able to hire a driver by using an app, both of which boosted the appeal of rideshares.
When Uber and Lyft were launched, they could outcompete taxis by charging lower fees initially and by providing more convenient services. Today, their prices typically are much higher than for taxis, and some riders are gravitating back to taxis. According to Yipit data, prices are 35% above pre-Covid levels.
Given this dilemma, what can be done to alleviate the problem?
The obvious solution is for local taxi commissions to reduce the regulatory burdens that taxi drivers face so they can compete with rideshares.
In a report written in 2017, Katrina M. Wyman, Professor at NYU School of Law, makes three recommendations. First, regulators should establish standards for e-hailed and traditional taxis as a unit because they are substitutes. Second, regulations for both types of services should be less onerous than taxis have traditionally faced. Third, while there is no general economic case for government compensation for existing taxi drivers, there may be a fairness argument for compensating some.
Nonetheless, while these recommendations are very sensible, customers should not expect they will be implemented quickly, considering that problems have worsened in the past five years.
Meanwhile, business travelers should consider alternatives to taxis and e-share rides. On visits to D.C. and NYC, I plan to download apps of the subway and bus systems so I am not left stranded. Hopefully, local officials will recognize there is a problem before cabbies become extinct as my D.C. driver fears.