An Economic Analysis of Government Regulation of the Taxicab Industry

Abstract

Various countries over the years have tried different economic systems, all looking to find the most successful solution to meet their needs and help advance their people. The different economic models range from the completely open market - no government intervention - to the completely closed market - total government control. Through an analysis of different · types of economies, we find that completely open and completely closed markets do not always work well. Particularly for certain markets, some regulation is necessary for the good of the industry and to ensure success and fairness to everyone. But for those markets, absolute regulation that eliminates all free-market principles is also a mistake. The taxicab industry is an example of an industry that works the best in a regulated market, neither completely open nor completely closed. It is a unique industry that calls for a unique economic approach. In order to analyze whether the current system, a regulated market, is the best option for the taxicab industry, one must first look at the current situation and who benefits from that situation. The paper first explains how the current system benefits the consumers (taxicab passengers), producers (taxicab drivers and medallion owners) and the government (the city). Then, in order to determine how the market would be affected if open or closed market principles were applied, the next section breaks down the different market type extremes and asks how those markets are beneficial to different people. The paper then applies that analysis to the cab market. The conclusion is that the regulated market is actually the best market system for the taxicab industry. Consumers are protected by regulated fare prices because they lack the resources and ability to compare and choose like one could in other industries. Producers have the opportunity to get a bigger part of the market because of the restrictions to entry, as well as the ability to make a good investment on a medallion. The government does well because it collects money through transactions such as tax o.n fares and medallion transfer fees. Regulation ensures fair prices, fair opportunity for cab drivers to make money, quality standards set by the government, and efficient resource allocation of taxpayers' money.