Taxis versus Uber: The Regulations, the People, the Money and the Future

Policy Backgrounders | Economy

No. 184
Thursday, September 15, 2016
by David Sobczak

The ride-hailing service Uber is only six years old, yet it has already inspired a host of imitators, such as Lyft, Wingz and Taxify. It has also sparked fierce opposition from the taxi industry, which is being undercut by Uber’s business model.

How Taxis Cornered the Ride-sharing Market. When motor cars became widespread early in the 20th century, the Progressive Era was in full swing. Progressive politicians believed that economic competition is wasteful, and supported greater regulation of business. At the municipal government level, various progressive reforms of the taxi industry included price fixing, limiting the number of taxicabs, mandating how fares are collected, dictating the hours of operation and eliminating competing taxi companies. In many cities, drivers were required to purchase and display medallions, signaling they were allowed to operate in that market.

These regulations generated higher prices that ensured the profitability of the taxi companies and led to a black market for medallions. Because taxis without medallions were illegal and the number of taxis in a market was capped, the taxi supply was artificially lowered, raising the cost of medallions. Progressive Era laws remain in many American cities; currently, a black market license costs as much as $400,000 in Boston, Mass. — which is still less than the official price. High costs deter startup companies, few of which can afford to purchase six-figure medallions. However, in the past few years, taxis have faced competition from self-described ride-sharing services. (These are more accurately described as ride-hailing or ride-booking services because ride-sharing services include noncommercial programs that allow commuters to pick up passengers to qualify for high occupancy vehicle, or HOV, lanes.) The commercial ride-sharing services utilize smartphone technology to circumvent local transportation regulations.

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