Abstract
This paper examines the institution of taxicab medallions in two of the largest cities of the U.S.—New York and Chicago—and changes in the prices of those medallions during the period 2009–2016 (for New York City) and 2007–2016 (for Chicago). We document a drop of roughly 50% in the prices of these medallions in New York and roughly 80% in Chicago from their peak in 2013/2014 to the present. We also find that medallion prices are positively correlated with taxicab revenues (for New York City) and negatively correlated with proxies for the intensity of adoption of Uber and Lyft and interest rates in both cities.
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Notes
As defined in the New York City 2014 Factbook, http://www.nyc.gov/html/tlc/downloads/pdf/2014_taxicab_fact_book.pdf.
Obtained by comparing the fraction of time that drivers have a fare-paying passenger in their car.
Independent taxicab medallions who bought their medallions after January 6, 1990, were required until mid-2011 to drive their taxicabs a minimum of 210 nine-hour shifts per year. In mid-2011, those rules were changed to allow drivers to meet the requirement by driving 180 nine-hour shifts per year and allowing individual owners who were 62 (or older) and had driven for at least 10 years to reduce their work schedule to 150 seven-hour shifts per year (http://www.nyc.gov/html/tlc/downloads/pdf/owner_must_drive_version_10.pdf).
Personal communication with Mr. Allan J. Fromberg of the TLC on 01/18/2017.
A Chow test of whether the samples of individual and corporate medallions should be separated or pooled suggests examining the two classes separately. In the test of whether the coefficients on the control variables are identical for the two classes, we obtain a p-value of 0.0175 and hence reject the null hypothesis.
Lyft entered the market only in 2014 but considerably fewer rides were taken on Lyft relative to Uber in New York City. http://www.cnbc.com/2014/07/29/lyfts-sacrifice-for-the-sake-of-its-nyc-launch.html.
Core: south of West 110th St. and East 96th St.: http://www.nyc.gov/html/tlc/html/passenger/shl_passenger_background.shtml.
The TLC makes available monthly metrics that include average daily trips and fares collected, active vehicles and drivers, and credit card usage in yellow taxis tabulated from yellow taxi trip data that are collected through the Taxi Passenger Enhancement Program (TPEP).
A value of 50 means that the term is half as popular. Likewise a score of 0 means the term was less than 1% as popular as the peak.
The terms “Lyft” and “Lyft driver” exhibit similar patterns and offer similar results to those in the paper.
Between 2006–2016, loans in New York and Chicago were 88% of all medallion loans in MFIN’s portfolio.
We also experimented with additional control variables: the price of gasoline, and the level of economic activity; but the inclusion of these variables resulted in issues of multicollinearity and high partial correlation with other variables.
The Durbin-Watson test statistic for the sample of “Independent Unrestricted” medallions varies between 1.02 and 1.18, which indicates the presence of positive serial correlation; whereas the test statistic for the sample of “Corporate Unrestricted” medallions varies between 1.41 and 1.58, where the Durbin-Watson test is inconclusive.
In another robustness check, I lag the farebox revenues and the variables that proxy for TNC penetration by 1–6 months. The results are similar to what we obtain in the base specification. However, depending on the variable being lagged, the number of observations in the estimation goes down. In light of that, the fact that there is no theoretical guidance on lag structure, and the fact that the results are similar, I simply report results from the base specifications that use current values. These results, like other additional results, are available on request.
In an alternative approach, I analyze medallion prices by looking at price-to-sales multiples. Using a regression framework, I find that the adoption of Uber and an increase in interest rates are associated with declines in the price-to-sales multiple. While an increase in the average hourly wage for taxi drivers and chauffeurs is associated with a decline in medallion prices, those declines are statistically significant only for the sample of independent medallions.
While we do not focus on the number of transactions in the paper, we do note that this has shrunk much more than the drop in prices. The number of transactions was highest in 2007 at the start of the sample period. After reaching a relative high of 507 medallions that were traded in 2012, the number of transactions dropped in 2013 to 361, before slowing down further to only 89 in 2014. Thus, even though prices held steady between 2012 and 2014, this was based on very few transactions. After only 12 transactions took place in 2015, we observe 30 transactions occur in 2016.
As was noted in fn. (19), results obtained by lagging the variables proxying for TNC penetration by 1–6 months were very similar to what we obtain in the base specification and are available on request.
− 41.36 (from col. (1), Panel A, Table 4) * (88–10) * 100 = − $322,569. We find similar results with the other terms.
In fact, interest rates on medallions loans decreased from 5.11% in 2013 to 4.625% in 2016 in Chicago and that movement in interest rates would have induced a higher price of medallions, ceteris paribus.
While all Lyft dispatches happen out of a single base, “Tri-City, LLC”, Uber uses as many as 28 different bases such as “Danach-NY, LLC”, “Dreist NY LLC”, and “Schmecken LLC” and we need to aggregate across all its bases.
However, these apps are not yet widely adopted. Curb and Arro had between 500,000–1 million and 10,000–50,000 downloads, respectively, on the Google play store, in contrast to Uber, which had between 100–500 million downloads.
The adoption of these apps by cabs could be viewed as an improvement to the dispatching technology that leads to higher driver productivity. Improvements in dispatching technology in the past have enhanced productivity of drivers and even resulted in increases in the proportion of taxicabs under fleet ownership (Rawley and Simcoe 2013).
Lyft, for example, in its early years, attempted to use the pink mustache as a source of differentiating itself from Uber. http://www.theverge.com/2016/11/15/13624152/lyft-amp-led-display-replace-pink-mustache-logo.
The median price-to-sales multiple among stocks in the S&P 500 was 2.2 in mid-2016 (http://www.marketwatch.com/story/by-this-measure-us-stocks-are-more-expensive-than-ever-2016-05-27). In contrast, the median price-to-sales multiple peaked at 5.5 (6.7) for Independent (Corporate) medallions in New York City in 2014. They peaked in Chicago a year earlier in 2013 at 6.8.
This is likely as 90.3% of taxi pickups occur in Manhattan, the city’s densest borough (Taxicab Factbook 2014).
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Acknowledgements
I am grateful to Allan J. Fromberg, Deputy Commissioner for Public Affairs, Taxi and Limousine Commission of New York City for answering questions pertaining to New York medallions and to Mandrita Bagchi, Sebastien Bradley, Jeffrey L. Hoopes, Christopher Kilby, Michael Pagano, Evan Rawley, and Jagadeesh Sivadasan for helpful suggestions. I also thank the editor, Lawrence White, and two anonymous referees whose comments have greatly improved the paper. All errors are my own.
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All links referenced in footnotes were current as of 9/1/2017.
Appendix
Appendix
See Table 6.
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Bagchi, S. A Tale of Two Cities: An Examination of Medallion Prices in New York and Chicago. Rev Ind Organ 53, 295–319 (2018). https://doi.org/10.1007/s11151-018-9612-5
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DOI: https://doi.org/10.1007/s11151-018-9612-5