1. The industry for taxi services in most cities exhibits the following characteristics: a. The city

1.  The industry for taxi services in most cities exhibits the following characteristics:

a.  The city has a limited number of taxi “medallions;” if you do not own a medallion from the city, you cannot operate your vehicle as a taxi service (i.e., you could not charge someone to drive them somewhere). You can buy a medallion from the city at an auction.

b.  The medallion allows you to operate a taxi, not simply to just drive one. Medallion owners often lease their medallions to drivers in shifts and charge the drivers a leasing fee.

c.  Taxi fares are usually set by a local city regulatory agency that oversees the industry.

d.  Taxi companies hire drivers (whose skills are generally easily transferrable to other firms, occupations, or industries), and also have expenses that are specific to the taxi industry (gasoline for the cabs, insurance requirements that differ from private vehicle insurance, driver training costs).

For each of the four categories above (medallion purchase price, driver lease fee, taxi fare, wages for transferable drivers, price for gas/insurance/other nontransferable fees), describe how much market power an individual taxi driver would have in setting the price/fare/fee/wage.

Compare the market power of taxi companies today versus twenty years ago in terms of their ability to earn revenue/profit from customers. What developments, if any, have occurred that alter the amount of market power an individual taxi company has?

This is a conceptual question. No figures were asked for. Please help!

 

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