Please listen to the podcast on Planet Money, NPR, July 31, 2015 (re-broadcast 2018) and answer the questions below in 250+ words total. Take the time to truly reflect and explore each question, coming up with a well developed answer. Be sure to proofread for typos and other spelling/grammar mistakes. Please number your responses.
Episode 643: The Taxi King : Planet Money : NPRLinks to an external site.
After you have listened to the podcast, answer the following questions in detail in about a paragraph or more per question:
1. Who is the Taxi King? Briefly summarize the story and describe how the monopoly originated.
2. Explain how and why the taxi monopoly is changing.
3. What caused the change in the taxi monopoly and do you think it is a fair outcome?
4. What happened to the price of medallions and the profit in the market as more firms began to enter the market?
5. In your opinion, what role should the U.S. Government play in regulating monopolies or other industries with market power? Do you think the government do enough to regulate monopoly power? Why or why not? Justify your answer.
The taxi monopoly originated in New York City with the Haas Act of 1937, enacted during the Great Depression. Before this, there was free entry into the taxi market, which led to a glut of cabs (around 30,000 in 1930) and intense, often cutthroat, competition. This overcrowding resulted in lower fares, poor service, and low wages for drivers. To stabilize the industry, ensure better quality service, and manage traffic congestion, the city government decided to freeze the number of taxi licenses, officially called medallions, at 11,787 (the number of operating cabs at the time). This intentional government constraint on supply, limiting the number of cabs legally allowed to pick up street hails, effectively created a monopoly for the medallion holders, making the medallion itself the most valuable part of the taxi business.
2. Explain how and why the taxi monopoly is changing.
The New York City taxi monopoly is changing due to technological disruption introduced by Transportation Network Companies (TNCs), most notably Uber and Lyft. The monopoly was based on the exclusive right to pick up street hails, enforced by the scarcity of the city-issued medallions. However, TNCs entered the market with a fundamentally different business model, operating through smartphone apps and primarily classified as for-hire vehicles, which were historically not subject to the same medallion restrictions.
The monopoly is changing because these ride-hailing services effectively provided an alternative supply of rides to consumers that was outside the existing regulatory framework. Customers embraced the convenience, transparency, and often lower prices of TNCs, which flooded the market with new competition. The established taxi monopoly, defined by its limited supply, was suddenly forced to compete with an essentially unlimited supply of ride-hailing cars. The reason for the change is the failure of the original regulatory framework to anticipate or adapt to this new technology, allowing new firms to enter the transportation-for-hire market without the capital cost of a medallion.
Sample Answer
1. Who is the Taxi King? Briefly summarize the story and describe how the monopoly originated.
The "Taxi King" referenced in the episode is Gene Freidman, who became one of the largest individual owners of New York City taxi medallions, at one point controlling over a thousand of them. The story essentially traces the dramatic rise and fall of the value of these medallions and the fortunes of people like Freidman. For decades, the medallion system created an artificial scarcity that made the medallions incredibly valuable assets, leading to a lucrative industry for their owners, financed often by large loans. Freidman leveraged the continuously rising prices, often using debt, to acquire more and more medallions, positioning himself as a major player in the market. The story highlights the moment when this government-created monopoly was disrupted by technology and competition, causing the medallion market to collapse and leaving owners and the drivers who bought them with massive, often unpayable, debt.