The Austin City Council restricts the number of city taxi permits (to 668) and restricts who can get them (just three companies). It thereby enforces a taxi cartel. The City Council just received the report of its taxi consultant, Ray Mundy, whom it paid $50,000 to advise it on (1) how to strengthen the cartel, and (2) how to divvy up its spoils. Most of the debate in town has centered on (2). Apparently, there is no public consensus on how to divide the surplus profits generated by a cartel-- probably because in most industries, cartel members go to jail once the cartel is discovered, which makes them reluctant to conduct public discussions of cartel profits.
The nascent pedicab industry in downtown Austin must be cutting into taxicab profits. Or maybe not. Perhaps Mundy simply spotted a free market in need of old-fashioned price fixing and market allocation schemes:
As for pedicabs, Mundy said Austin has too many companies offering the service, an uncertain fare "system" and a good number of unsafe vehicles.
He suggested that the city stop issuing permits to new companies and somehow encourage that industry to consolidate.
Mundy also said that the city should allow only pedicabs specifically manufactured as a unit, banning the makeshift type in which a passenger cart is attached to a regular bicycle with some sort of bar. And the city should set a minimum fare, with tips possible, rather than the current Wild West situation where drivers basically charge whatever the market of the moment will bear.
I'm flabbergasted. I'm flabbergasted by the brazenness of the report, and I'm flabbergasted by the public's apparent indifference. Cartels are bad for everyone who is an industry outsider. They are bad for would-be entrants into the market, and they are bad for consumers. This timely post by Matt Yglesias on Milwaukee's cartel is directly on-point:
The city of Milwaukee capped the number of taxi permits at 321 way back in 1992, and consequently the price of a permit on the secondary market has risen to $150,000. That’s excellent news for people who made well-timed investments in Milwaukee taxis, but obviously it’s bad news for would-be taxi entrepreneurs who’d like to get into the market. Fewer permits means fewer jobs for cab drivers, and it means less access to taxis in the city. Dynamics of who uses taxis, what they cost, and where they’re available differ a lot from city to city and I’m not familiar with Milwaukee so I can’t say who in particular is disadvantaged by taxi scarcity but it’s not the sort of thing that helps a city’s quality of life or economy.
I'd add that taxi-rigging is also bad for the city's culture. It fosters, if not outright corruption, then a constant suspicion of corruption, since it gives Council the power to hand outsized profits to a favored few. Not suprisingly, both taxicab companies and taxicab drivers (who believe the cartel should consist of incumbent taxicab drivers rather than incumbent taxicab companies) poured tens of thousands of dollars into the last city council elections.
I think that if it is a crime for pipefitters and vitamin makers to fix prices and allocate market shares, then it should be a crime for city councils to do the same on behalf of taxi companies. It is not a crime, though; the market-rigging merely provides a nice fund-raising opportunity.
Eliminating the antitrust exception for government action would do wonders for municipal governance.
NB. Some people misinterpret me to advocate the elimination of licensing. I do not. Taxi drivers should be required to show the necessary state-issued licence (Class C?), provide their driving history, etc. The City can and should establish minimum qualifications. The City should not use a licensing regime to limit the number of drivers or their rates, though.
Commenters have suggested all sorts of hypotheticals in which dishonest taxi drivers fleece hapless riders or do other bad things. Why this is a particular concern with taxi drivers escapes me. In any event, the City can always pull the licenses of drivers who rip off customers or otherwise break the law.
