Do Atlanta's Taxis Deserve a Level Playing Field?
On May 15, the Georgia Supreme Court unanimously rejected an appeal from Atlanta taxi drivers seeking recovery funds from the state for “deregulatory takings.” The taxi cartel had argued that the deregulation of ride-sharing services such as Uber and Lyft had decreased the value of taxi medallions to such an extent that the taxi industry had become entitled to compensation by the state.
The court not only wholly rejected the argument, but also declared that taxi operators have no right to an “unalterable monopoly.” Simply put, purchasing the medallions from a government agency does not entitle the buyer to lost market value caused by new entrants. Taxi operators can compete and innovate, but they cannot fall back on the support of the state. In coming to this decision, the court relied on similar decisions in Chicago and Minneapolis, where other states dealt with similar arguments.
The 2015 Georgia legislation that prompted this legal fight effectively deregulated Uber and Lyft and banned government offices from creating new medallions systems, which license taxi operators and restrict the amount of entrants into the market. However, the Georgia legislation left existing systems such as Atlanta’s in place. Accordingly, the number of taxis on the road remains artificially limited by the city of Atlanta; meanwhile, aspiring services must purchase the medallion, which even at a depreciated cost runs $10,000.
It may be easy to agree with the taxi operators that it is unfair to allow Uber and Lyft to enter freely into the market while tagging new taxi services with exorbitant and anti-competitive fees. However, in reality, taxi services have fallen into their own trap, victims of their own rent-seeking and anti-competitive lobbying. It’s time to free taxi companies and allow them to compete, but not before recognizing that it was the taxi companies, themselves, who advocated for protectionist measures, such as medallion systems, in order to insulate them from competition.
The Heritage Foundation’s Jason Snead argues the origin of such medallion systems was grounded in selfish reasons:
While forming a private cartel to manipulate prices or eliminate competition may be illegal under our antitrust laws, using governmental authority to establish the same barriers to entry is not, since government-created cartels are immune from antitrust liability under the so-called state-action doctrine.
Faced with dropping startup costs in the early 20th century, taxi companies became a bona fide cartel, hiding behind medallions and regulations to protect existing services from potential new competition. This artificially increased the difficulty and costs of entering the market and, in doing so, they kept prices high for consumers and decreased incentive to innovate. These laws were intended to protect those taxi services already on the market — that’s all.
Now well into their first decade and armed with high levels of consumer participation, Uber and Lyft have poked holes into this strategy. Low costs, convenience, and innovative methods of communication have cut into taxi companies’ profits and long-term viability. All it takes is legislation like Georgia’s to show the degree to which cab companies have failed to innovate. They didn’t have to, given the state-enforced lack of competition for which they had lobbied so effectively. And the sudden competition from Uber and Lyft has hurt cab companies. But that’s more than fair after years of subsidization and protection by the state.
It’s true that the market still isn’t really free, even though the Georgia legislation that started this fight frees Uber and Lyft to compete freely. After all, the legislation leaves it so that taxi services can’t operate without expensive medallions. The competitive advantage now enjoyed by Uber and Lyft can be lessened by freeing taxi services so that they, too, can enter into the market without prohibitive startup costs. Medallions have sometimes been fought for on the grounds that they promote safety and cut down on road congestion. But the healthy presence of Uber and Lyft drivers on Atlanta roads demonstrates that there is room for market entry. Such competition also ensures that drivers wishing to enter the market will think twice about their odds of success before beginning a service, even with the absence of a medallion system.
It may be tempting to advocate vindictive punishment for the taxi industry after so many years of protectionism and rent-seeking. But consumers, aspiring taxi services, and, yes, Uber and Lyft will all benefit in the long-run from a level playing field that lowers costs, incentivizes innovation, and provides entry opportunities for all.
Chris Machold is a soon-to-be law student and Atlanta resident. He writes about philosophy, religion, culture, and political theory.