
Under Pressure from Uber, Taxi Medallion Prices Are Plummeting - uladzislau
http://nytimes.com/2014/11/28/upshot/under-pressure-from-uber-taxi-medallion-prices-are-plummeting.html
======
ps4fanboy
"The crucial question for medallion owners like Mr. Ionescu is, if Uber is
that much cheaper than a taxi, why would anyone take a taxi, and therefore why
would any driver pay to lease a medallion? Mr. Ionescu says his revenues are
down around 25 percent, and he’s having trouble leasing out his whole fleet."

Apart for selling the right to operate in a government sanctioned monopoly
what service does this man provide? This looks like the worse example of rent
seeking I have seen.

~~~
ghshephard
Here are the "non-services" that he provides:

o A poorly tracked rider/driver interaction in which it's somewhat obscured
which riders I road with in case I have a bad interaction and need to follow
up.

o A poorly designed hailing system in which I need to physically see the taxi
in order to request its service.

o A poorly designed (non existent?) tracking system, in which the taxi that
I've requested may, in fact, be service another passenger, and have no
intention of coming directly to me for the next 30 minutes. Or, never at all.

o Almost no feedback, and certainly no "default opt-in" feedback mechanism on
the driver, providing no incentives for the drivers to behave professionally
or courteously for every ride, resulting in frequent rude or abrasive
customer/rider interaction.

Without the medallion, of course, he couldn't afford to provide those "non-
services", and would therefore have to compete for business. The medallion is
what allows him to provide such a horrible level of service - and, such poor
service is frequently seen in most monopolistic markets. See Comcast.

~~~
furyg3
It's also important to list the proposed services the monopoly provides.
Personally I avoid them at all costs... Nevertheless they are historically:

* Price reliability: Prices in most taxi systems follow strict rules. Customers can use this knowledge to estimate what they will spend, and drivers what they can earn.

* Service dependability: Because medallions are limited and prices are regulated, taxi drivers can make a living, and the service does not boom/bust. This means customers are not gouged in good times and unable to find taxis in bad times.

* Non-discrimination: Taxis are usually required to respond to all hails, and to not refuse service because your ride is too short/long.

* Driver tracking: because a taxi driver must have a medallion and follow rules about posting information in/on their cabs, passengers can distinguish between 'taxis' and random people offering ride services. While there may be no built-in reputation system, there is incentive and recourse. How do passengers know if a non-taxi is a guy who makes his living from offering rides, or a guy who just stole a car and is going to rob them? A taxi driver is risking a lot by robbing his passenger.

Many of these points are matters of preference, or can be solved by technology
(reputation). Do we, as a society, want to incentivize a stable transit system
by limiting the number of drivers or by paying more than 'market' prices in
slow periods, and more in busy periods? Do we want drivers to be able to
refuse service? If not, how do we compensate drivers who make short/long trips
that have low profitability and high opportunity costs?

~~~
ghshephard
I like the general balanced approach you are taking, but I have to critique a
few elements.

Service dependability - I take cabs exclusively, and, while I can't comment on
other markets, I have deep knowledge of the bay area taxis. First, it's
important to note, that even when they are operating in "normal mode" \- you
can never, ever quickly get a taxi on the peninsula. Minimum time is always
about 15-20 minutes, and frequently 30 minutes. Also, when it's busy, or late
- forget it, you will not get a taxi. Compare this to Uber, that works hard to
ensure you will always have a ride, regardless of time, level of busy. And
yes, basic economics therefore suggests that in order to make that happen, you
will have to vary the price. But, I would definitely like to have the _choice_
of taking a more expensive ride, then no ride at all.

Non-Discrimination: You've got it backwards. Taxis discriminate all the time
based on every conceivable factor. Uber doesn't even let the driver know where
you are going, and the driver is committed to picking you up before he sees if
you are young or old, black or white, male or female. About all they can
discriminate on is _how well you treat them_ (Drivers rate passengers).

Your Driver tracking thing is a long stretch. A better example would be, "Taxi
Drivers in general have been doing their job for a while, there is little
churn, so it's unlikely you will get one that will rob or rape you, (though
it's not unheard of, particularly with drunk passengers.) as those drivers who
do that are probably going to get fired, and it's less common to get new
drivers with taxi services than with uber.

Of the 200 or so RideShares, the worst one I got was a Driver who had only
been working for Lyft for a week, and used her cellphone to get GPS directions
to the airport, and came to a hard stop at a stop sign. Every other one has
been excellent, courteous, and clean safe cars. I have no end of horror
stories of psychotic taxi drivers driving cars that sometimes wouldn't open
from the inside.

~~~
jsun
Yeah I love Uber but the one thing that's really annoyed me the past couple of
years is whenever it goes above 2x surge every UberX driver immediately
"forgets" how to navigate the city. Even a couple of blocks out of the way
means a couple of bucks extra on your fare at surge pricing levels. Uber
definitely has this data, I would love to see them release it given their
commitment to data transparency. Even some really simple metric like average
distance traveled vs. average GPS route distance during surge vs. normal
should give a fairly unbiased view of how often this is happening.

~~~
jquery
Surge pricing gets more, less experienced, drivers on the road.

------
seliopou
> Yellow taxis in New York also face competition from new green “boro taxis,”
> which may pick up fares only in the boroughs outside Manhattan and in
> northern Manhattan. That program has been in the works for three years,
> including during a period when medallion prices were still rising. The vast
> majority of yellow cab pickups occur in Manhattan below 110th Street or at
> airports, where yellow cabs face competition from Uber but not from green
> cabs. Still, the green cab program has faced strong opposition from yellow
> cab medallion owners, and the start of falling medallion prices coincides
> with a June 2013 court ruling upholding the green cab program.

Did anybody read this? My understanding is that green taxi medallions started
selling at around $5,000 when they were introduced, and green taxis are now
fairly common in the outer boroughs. You also see them quite a bit in lower
Manhattan as well (dropping off fares).

Also, did anybody look at that chart? Prices haven't been stable for the
entire time span that the chart covers, and the current price isn't even the
min for the data set.

Uber's been operating in New York since well before 2013. It just so happens
that the (three month as indicated by the chart, mind you) decline coincided
with a court decision that upheld a city policy that would put more cabs on
the streets in areas of the city that are booming right now.

On top of that, I wonder if there are any other macroeconomic trends that
might be affecting medallion prices and ridership overall. Mind you, if total
taxi-like revenue for the last given period is R = T + U, where U is Uber's
share of the revenue and T is the rest, and the next period's revenue is R' <
R, then it's completely consistent to have T' < T and U' > U. In other words,
total taxi-like revenue can be on the decline even as Uber's revenues are
increasing. This could be because the Uber service is cheaper, or because
people are overall using taxis less. Who knows if this is actually happening?
I don't. But it'd be interesting to see the question raised and pursued, even
to be quickly dismissed by some obvious fact.

Don't mistake this article for economic analysis. It's a puff piece.

~~~
netcan
I'm ashamed to say that I didn't. You're right. Medallion prices look pretty
close to average for the dataset, which only covers 18 months. The article
also mentions problems with the data. Low data, small dataset, questionable
outlier removal.

" _There was only one medallion sale in September, followed by nine in
October_ "

This data doesn't really say anything. The remarkable thing here is that
medallion values aren't dropping. This really is terrible reporting.

------
smcl
Stories like this confuse me, they seem to suggest that I should be
sympathetic towards previously inflated prices starting to fall. In this case
we're talking about taxi medallions but closer to home it's been UK house
prices where a decline is reported as "bad" and a rise is "good". In both
situations it's seemed pretty obvious to me that there's a crazy overpriced
asset that will correct eventually and those who paid over the odds will take
a hit.

~~~
k-mcgrady
House prices are always reported as bad. Either too high for new buyers or
they're falling and owners don't like it.

~~~
_delirium
Falling prices are bad in the current arrangement, unfortunately, for more
reasons than the current owners being upset: a bunch of other financial
products are also tied to them, so falling house prices cause a mess cascading
beyond just the real-estate market. E.g. the 2008 crash produced defaults on
housing derivatives worth more than the entirety of the actual real-estate in
question, which in turn produced bank failures, etc. (Not a good situation in
the first place, but it's why financial news treats falling housing prices as
negative news.)

~~~
humanrebar
> a bunch of other financial products are also tied to them, so falling house
> prices cause a mess cascading beyond just the real-estate market

That's an argument for gradually deflating housing prices, assuming they are
overpriced. If people are running businesses and preparing for retirement with
faulty price projections in mind, I don't see why others (people who don't own
homes, mind you) should be forever penalized because the system is already
stacked against them.

~~~
_delirium
I agree they should be deflated, if overpriced. My point was that the people
who don't own homes _also_ suffer from real-estate declines in many cases,
with the current way the financial system is intertwined with real estate
(which is itself a problem). By dollar terms the vast majority of money lost
in the '08 real-estate crash was lost by people who didn't actually own a
house or condo, because the second-order losses were much larger than the
primary losses.

------
raverbashing
"“I’m already at peace with the idea that I’m going to go bankrupt,” said
Larry Ionescu, who owns 98 Chicago taxi medallions."

That's how much again? 30Million?

If you manage to go bankrupt with this kind of equity you're bad at business.
Like, really bad.

The best investors know when it's a good time to go into a business, but also
when it's time to disinvest. Looks like the time is now (or maybe, 6 months
ago)

~~~
onion2k
The problem is that pretty much everyone realised the problem at the same
time. In order to disinvest there would need to be people willing to buy, but
in this case it seems his assets became unsellable pretty much overnight. It's
not like Uber was always certain to win; for a long time there were plenty of
people who thought Uber would be legislated out of business. Now it's looking
like that won't happen. Consequently his position is sensibly pragmatic - his
business is failing and he has no way to get back much of his money.

The best investors realise that there is _always_ a possibility of that
happening.

~~~
raverbashing
"The best investors realise that there is always a possibility of that
happening."

Exactly. Especially with things that are very dependent on legislation.

This is not a material asset, it's a license. Cities might one day legislate a
medallion is not needed anymore, or increase their number, or change the rules
in some way.

------
bluedevil2k
The article doesn't touch upon the illiquidity of the taxi medallions in these
cities. In most of them, once you buy the taxi medallion, it's difficult or
impossible to sell again. Even in cities where you can sell it (San
Francisco), you get a fraction of what you paid for it (30% typically). This
distorts the market even further, when the buyers need to price in the fact
that these are assets that in some cases might depreciate to $0, and not give
them the ability to sell them before that happens. Additionally, there's no
price feedback, or it happens rarely. As the article points out, NYC publishes
the price once a year, and did it incorrectly last year. What type of
investment gives you no feedback on its current value?

To reduce the price swings, cities need to create an auction system where they
allow current owners of medallions to list their current medallions for sale.
The auction system would provide price transparency, and allow all the
stakeholders involved (medallion holders, buyers, and sellers) to get a clear
picture of the market price at any given point.

------
BillFranklin
I'm bored of stories about Uber, they're all paid for, marketing crap.

~~~
colinbartlett
You are suggesting that Uber paid the New York Times to write this piece on
medallion prices?

~~~
BillFranklin
Yes, and I don't know why I've been downvoted for it. Read this:
[http://www.paulgraham.com/submarine.html](http://www.paulgraham.com/submarine.html)

Then this: [https://www.google.com/webhp?sourceid=chrome-
instant&ion=1&e...](https://www.google.com/webhp?sourceid=chrome-
instant&ion=1&espv=2&ie=UTF-8#tbm=nws&q=Uber)

Uber's PR agencies are Westbourne and FleishmanHillard:
[http://www.prweek.com/article/1295173/uber-bring-european-
pr...](http://www.prweek.com/article/1295173/uber-bring-european-pr-taxi-wars-
demand-comms-firepower)

------
steven2012
I'm shocked at how the taxi industry is behaving in the face of this new
competition. Uber and lyft have been around for several years and all they are
doing is sitting there and then eat their lunch with no attempt to protect
themselves. But believe me I have no sympathy for them, especially in the Bay
Area. I welcome the idea that they go bankrupt after the years of disservice
they have provided this area.

The interesting thing is that I'm not sure what options they have at this
point. Uber is spending hundreds of millions of VC money, which is a huge
advantage over existing taxi companies that don't have this free money that
allows them to operate at a massive loss. About the only thing I can think of
is taxi companies from several cities across the U.S. have to merge together,
and then partner with a smaller company that can raise the same 100M+ in
financing and then create an uber competitor that can drive prices even lower.
Basically it's a scorched earth policy on taxi fares driven by VC money,
similar to the dot com days.

Other than that, I have no idea how the taxi industry will survive, unless
they can somehow get uber regulated the same way they are.

------
dmishe
I'm not familiar with medallion system, do you have to buy them per-car or
per-cab-company?

In any case, 1 million is just, wow.

~~~
ars
Per car, and also they are tied to the car, not the driver. So divers rent
them for the day, or by the hour.

It's basically a government sanctioned monopoly. It doesn't even have the
pretense of being about safety or anything like that.

~~~
jgh
Does it transfer to a new vehicle? Cabs put on so many hard miles that it
seems like a really steep price for something that isn't going to last that
long.

~~~
ars
The medallion itself is physically attached to the cab, but since the
medallion does not expire I'm sure there is a transfer process.

------
netcan
I realize that most people here thin medallions were always a and idea, bad
for consumers and _should_ die.

But, the fact is that they do exist and were promoted by the municipal
government (this is a municipal government system, isn't it?). Even if it was
a bad idea, aren't they responsible for it? They sold or issued medallions on
the grounds that they are a resellable perpetual license to run a taxi. If i'm
not mistaken, the city made money selling them.

Unless you consider the whole "contract" void, I can think of only two logical
perspective. Either the city is violating that contract by allowing uber to
operate or uber is a new kind of service with no bearing on that contract. IE
if segways had replaced cabs, tough luck #1 sounds prohibitively expensive to
accept & #2 sounds dishonest.

~~~
icebraining
I think that question is perfectly valid; even if the contracts are considered
unfair/rent-seeking or whatever, why shouldn't the city be at least partly
responsible for issuing such contracts?

There's an article on Cato about the issue, which focuses on the economic
efficiency of the issue: [http://www.cato.org/blog/should-taxi-medallion-
owners-be-com...](http://www.cato.org/blog/should-taxi-medallion-owners-be-
compensated)

~~~
netcan
I agree that this is anti-consumer. But I can imagine similar schemes that
aren't.

Say a city decides to have a market in the park every Sunday. They issue
resellable medallions for stalls, food carts, etc. A few years later, they
cancel the market or the medallion system or otherwise make the medallions
worthless.

With uber there is some ambiguity. Maybe uber aren't cabs. If some awesome new
public transport system lowered demand for cabs the city wouldn't be
responsible. Claiming that they aren't cabs is how/why uber get around the
medallion system in the first place. Taxis and medallion issuers are
challenging this in someplace.

In any case, I think there is a genuine question here. Even if medallions were
wrong in the first place, issuing them was the wrong, not buying one. Buying a
medallion is the only way to operate a cab. I don't understand the downvote-
anger.

~~~
icebraining
_I don 't understand the downvote-anger._

I think it's because they're being sloppy in the reading of your post and
assuming "therefore Uber should be banned" somehow.

------
jsun
I'm not sure the math works out. It mentions a weekly lease price of $780 per
medallion in Chicago. Assuming 15% tax and 15% cost of insurance that comes
out to $600 to the leasing company. Assuming the car costs $25,000 and has a
depreciated value of $10,000 after 3 years as a fleet car, that means the
weekly "cost" of the car is $113.21 (assuming a 5% financing rate), which
prices the medallion at $486.79. A perpetuity of $486.79 per week at an
expected 20% gross return only costs $126,566.15, less than a third of the
selling price of a medallion in Chicago today. Even at a expected 10% gross
return still only comes out to $253,132.20. Am I off on my math somewhere?

