FTC Staff Comment Before the Seattle City Council Concerning Proposed Taxicab Ordinance

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FF:DERAI. TRADECOM;M1SS10N
S<:Altl.. R~ Offk..
2206 federuJ Building
~1.5 Second A"'CfNC
3e"tLJ"" Wiuhington 98174
(206; "42·4656
,-htly 	., .	~ l • 	1987
.•";. . ' .. t'
'. '.. ..
Ha. 	Jane 	Noland
Soattle 	City 	Council
1100 	Munic1pa~ Building
bOO 	4th 	}\v'::lnue
SeatCle. 	Washington 	98104
Uear 	Councilme~bGr ~01and:
Wo 	are 	p10~$ed ~o respond 	~o your 	invitation 	for 	comments 	on
a 	propos ad 	taxl. cab 	o.r:d.i nance 	for 	t:he 	C::' t Y 	cf 	Sea tt:l e. 1 	The
ord~nance ~ould fix 	cab 	fares, 	im~ofie rGst~ictions on 	the 	entry
of 	new taxis 	~nto the 	market, 	tignten 	taxicab 	safety 	~nd
a~p6arance standards, 	and 	requi:e 	d=ive:s 	to 	complete 	a 	training
program. 2 	Our 	comments 	focus 	prima=~ly on 	Che 	price 	and 	entry
centrol 	fea~yres of 	the 	preposed ordinanc~. 	We 	believe 	that
these 	features 	',""ould 	r.esult. 	in 	r.igl~el.· p:::ic&~ and 	a 	~ecrea!:;~d
supply 	of 	taxi 	seJ-:vice~l and 	·"Quld 	there:;ore 	:-,ar~ consumers. 	For
this 	reason, 	we 	reccmmend 	~gainst their 	a6cpt~on.
The 	FTC' E 	Seatt.le 	RGlgional 	Office 	hes 	bee:~ interested 	in
taxicah 	regulation 	s~nce 1978, 	whe~ we 	suhmitted 	comments 	in
Bupport 	of 	deregulating 	Seattle 	tax~ca~s. 	The 	Commission'e 	staff
has 	a130 	eUbm.i l to:;o. 	cc:mm€nts 	con<;erfl i ng 	ta.':i 	r",gulation 	to 	the
city governments 	of 	Anchorage, 	Chicago, 	New York, 	San FrAncisco,
and 	Washington, 	D.C .• 	a~ well 	as 	to 	the 	Alaska 	and Colorado
legi~latur89. 	Further. 	the 	Commission 	issued 	adminiGtrative
/
2 	Currently, 	Seattle 	and 	King County, 	in 	which 	Seattle 	1s
lOCAted, 	havQ 	taxi 	ord1nanc~G that 	ara 	different 	from 	each othar.
King County 	manda~~Q ~ r6qui~6d t~~i 	far~ 5y~tem. 	while 	Seatele
impose.s 	only 	ma:>dmlHi~ fare 	lHvel~. 	'I'hs 	p:co~os<?d Seattle ord1nar.ce
is 	sim11cr 	~o ana 	recantly 	adopt~d b~ the 	King ~ounty Council .
."0 - - ~.
1 	This 	lettar 	rOprSGBnts 	the 	views 	of 	the 	Federal 	Trade
Commission's 	Sa~ttle Regional 	Of.fice 	and 	the 	Bureaus 	of
CompQt1tlon, 	CQnsumer 	PrQtQc~ion, and 	Economics, 	and 	not
n~c~68arily tho~~ c~ 	~h6 Commisaion 	its~~t. 	The 	CommissiOn 	h~~,
however, 	votod 	to 	autborize 	~ubrniSDion of 	theae 	com~enLs, 	with
Commissioner 	Bailay d1ssanting.

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JanG. 	Noland
JU~y 31, 	1987
Pago 	2
complaints 	in 	1984 	~g&inst M1nnoapoli~ ~nd N~v Or~.3n8.
challenging 	entry 	~QGtric~10n~ and 	priG~ r85tr~1ntg imposed 	by
~h08'" cities. :3
In 	1~e4. 	t~~ Commission' s 	8ur~ftu of 	Econo~ics reloaDed 	a
""Aport 	ent:!. tl ,,~d i'.ill......s:_G_QJ;.Q.I"!li..c__hJl~), '!~j..t ......2~_'I\.t;;.;.Lc.{.\b 	'~gul a'i: LQll. 4
Based 	en 	a 	careful 	~tudy of 	regulata~y oystamu 	in 	cit~.e
::h=:-cughout: 	the 	,~oun't~:y, 	thlJ. 	iHlt:~(')~'$ found., 	,'lmong 	other 	~h.i n9~ J
that 	there 	io 	~o persuasive 	Dconomic 	rctionnle 	~or 	~Qstrict1ng
~he 	total 	numhnr 	cf 	taxica~s. 	The 	9~udy found 	that 	such 	rc~trlc'
ticns 	waste 	resou~cc", hnnn 	ConSUlI1Cr:3, 	';:;.:"ll:;..i.;~pos~ a 	disPl:'Opor ..
tion3te 	burden. on 	lOH-inccmCl 	peopl,=" 	J.:..... :l",05.),'V:: 	the. 	eldorly 	dOC
handicapped. 	On 	the 	ochc~ hand, 	thn 	repor~ nO~8d that 	ocher
kinds 	Or 	~a~i~ab 	regulations, 	ouch 	a& 	tho~n 	~e!atin~ 	to 	veh1clc
safety 	or 	liahilit¥ 	i:~g\.lranC!;c!. ,:ld)' 	b~ 	:ju"\':.l:'::'Clbla 	~n o;;~t~r t,"
protect 	consumers. ~
Seattle 	~eB1dant5 and 	visitor3 	hav~ 	baen 	enjoying 	t~B
b~nefito of 	t:a:<~i... dpr!::-Igu.!..at:~.or'l ~i:-lC~l iSIS. 	y.r~· est::"ml-lt.e 	t~at
between 	1979 	and 	1961. 	over 	200 	new 	Jobs 	[or 	taxi 	drive=~ w~rc
created. 6 	Waiting 	times 	have 	drcpped 	b8caUDG 	of 	t~Q g:eater
number 	of 	taxis 	en 	tIle 	streets. 	Fa~e$ 	~1ave riGen 	more 	slcwly
---------,--,--.._---
The 	complaints 	stated 	that 	thm 	Ccmm~Gbion had 	reason 	to
believe 	that 	each 	city; 	acting 	in 	concert 	with 	local 	cab
companies, 	had 	violated 	the 	antitrust 	laws 	by 	restricting 	entry
into 	taxicab 	ma.rkli\ts 	o.nd 	by 	<ldopt~_n9 uni fo);;m 	f.'L::es. 	The
complaints 	wera 	withdrawn 	following 	Louisiana's 	enactment 	of 	a
law exp~esaly permitting 	its 	cities 	to 	~egulate taxicGbs 	in 	an
antlcompet1tive 	manner 	exempt 	!~orn the 	ant~truBt laws, 	and
Minneapolis' 	amendment 	of 	~t9 	City Code 	to 	pBrm~t more
competition 	among 	Caxicab5.
4 	See
Econom.ic
Bureau 	of 	EconomicA. 	Federel 	T~ade Commission,
Analysis 	of 	Taxicab 	Regulation 	(lS84].
An
5 	Another 	1.984 	t'<tud~{, 	cOtn.rnJ.~$i.(}I~ed by 	t:.h~ U. S. 	O.partment 	ot
Transportatian, 	confirms 	th~ principal 	c~)nclu~ions of 	our 	B~rqau
of 	Economics 	report. 	The 	COT stUdy 	concluded 	that 	re9ulations
restricting 	al:1'cry 	Qf 	new t.~.xic4\b~. OlrlC 	P~~'~v~!\'ltin9 di.count1nq 	of
fares 	coat 	con:;um",rs 	nesrly 	$800 	J)1U.J.:i.~:H; (:,m'lu~lly in 	hi9her
fares, 	and 	rEH>I.ll.tcd 	in 	38, 000 	f~h·<:t.r ~()b~ 	n;!,U.onwide 	in 	the 	taxt
industry. 	UMTA, 	U. fi. 	Dept. 	af 	TrRnm~o~~et1nn: ~a9ulatory
Impediments 	t:.: 	F.l:'iv/)Ot6 	SCQI.:ox: 	(J.!:bi\l~ 'T~-;:'>.;~.:d.~::;::S (1984).
6 	This 	ia 	b,,~sl':';a on 	ttl» 	H\tmber c,f 	t'l.(,~!'" t:,,-:d.;' 	that 	entered 	thQ
market:. 	~ 	Zerbe, 	:$5:iL~t_l2.. 3A:g.?i.:._~ . .\~f.~r~s·.uj.".i'~~n. Hitl 	.. 	rQtlloJ. I,
Regulation, 	No'.1. -D0.c. 	1963 r 	.:t 	4.3, 	,1·1. 	(c~opy act.Qn.d)
E0'd
~;aa..

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than 	transit 	prices 	generally. 	Taxi 	faros 	far 	radio-dispatched
cab3 	in Seattle 	in 	1981 	were 	about 	15% 	lower 	than 	we 	estimate
thoy 	would 	havo 	boon 	had 	regulation 	continued. 7
Evidence 	from 	1967-1979, 	a 	period when 	taxis 	were 	regulated
in 	Seattle, 	6uqgeetD 	that 	price 	regulation increases 	cab 	fares 	by
i\;;;CO\lt. 	11 'to a 	Higr.0r 	farBs 	harm 	all 	consumers, 	bu":: 	dis-:Jronor~ion
aL<sly 	ir:.jura 	thl~n'le v;he 	are 	most 	dependent 	on 	ta;.:~. t.ra~s;:;rts.tion:
t~Q peor. 	the 	handicapped, 	and 	the 	elderly. 	Those 	consumers
np~nd a 	larger 	portion 	of 	their 	incomes 	on 	tran5portat~on than
ot.her: !:!egmon.ts 	ot 	t.!H"; 	populatiQE:. ') 	T~ some 	6;<tL::H:, 	the 	&E_cial.
bur~Gn of 	t~eB8 groups 	may 	be 	les~encd by 	the 	ordinance 	provi-
G~Qn. 	Section 	l(c), 	under whic~ schedules 	for 	eiscount 	fares 	fo:
~>c~nio.r: cit.iz.er:s, 	t.he 	he.ndica?pec. 	and 	you'tr: 	may 	L~~ £ilt:id. 	':'his-
p~cvi6~on, however, 	will 	not 	help 	other 	low-income 	customers.
':'he re 	erG 	two 	ta;·d. 	mi:l::::kGts 	i. n 	Sea ttl e. 	The 	firs t,
~1'=.::n:-ElgQnt:ino about 	tHo-U·..irds 	of 	the 	total 	ta.xi 	;narket. ~o is 	for
:~~io-dispafched cab5 	and 	is 	dominated 	by 	taxi 	fleets. 	In 	this
l:'l~u:ket, 	customer" 	can 	easily 	call 	d5.fferent 	t:ax.i 	companies 	and
thU6 	shop 	tor 	cahs 	through 	pri~e comparisons. 	Fares 	and 	en~ry
are 	~ffect!vely controlled 	through 	competitive 	n~arket forces.
DeregUlation 	reduced 	tho 	f8re~ 	for 	radio-dispatched 	cabs 	by about
~5%, 	~s 	compared with 	what 	fares 	would 	have 	been 	had 	they
:;~mQincd rO<;l,l,lated. 11
Tho 	second 	market 	i~ 	for 	taxis 	at 	cab 	stands 	and 	for
cr~iGing caba, 	uuch 	~B at 	the 	~irport. 	the 	bus 	depot, 	or the
ferry 	terminal. 	Here 	tha 	"first-in-first-oct" 	taxi 	line 	sytil~ms
make shopping 	for 	pr~ce more 	difficult. 	A~ 	0 	result, 	this 	market
13 	lc~e 	competitive. 	A significant 	percentage 	of 	the 	independent
taxicabs 	serving Seattle 	operate 	in 	this 	market 	and, 	if 	left
unregUlated, 	will 	tend 	to 	charge higher 	fares 	than those
prev~ilins Ln th. 	~~dic-di9patched market. 	If 	problems 	exist 	in
..t
8
l.Q,. 	at 	45.
I,Q.
9 	A 	1980 	U. S. 	Deportment 	of 	Tran8po~tat1on study of 	the
Seattlo 	taxi 	market 	concluded 	that 	f~nancially disadvantaaed
consumers 	make 	up 	2.5"0 	of 	total 	taxicab 	ric\ership 	in Seattle.
UMTA, 	U.S. 	Dept. 	of 	Tr~n8portationt Taxi 	Rogulatory 	Revision in
Seattlo 	102 	(1980).
10
1 t 	Zerbe, 	li._li!1,Xi'_..~r.in 	tQr 	~~~R' 	Public 	Policy Notes,
In5t1tute 	for 	Public 	Policy. 	University 	ot 	Washington 	(1962).
2i: :Sil'. ~J"";£/L0'~~_1
-,;... "-.;,{-,.>.....;.:..~'.;..) - """':/ ·~;·,·~~.L-:·, ,:'.;':~-

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Jane 	Noland
July 	31, 	1987
Page 	4
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the 	Seattle 	taxicab 	industry, 	they 	appear 	to 	l1e 	in 	thi6 	second.
smaller 	market. 	Non6theless, 	the 	proponed 	ordinance 	is 	aimed 	at
both 	markets 	and 	would 	harm 	all 	taxi 	Consumers.
The 	proposed 	ordinance 	now before 	the 	Seattle 	City 	Council
is 	~n some 	respBcts 	Similar 	to 	the 	ordinance 	rocently 	adopted 	in
Y:ing 	Ccunty. 	'l'h,~t c.r:dir;8r.c~ \-:a.s 	developed 	Learn 	the 	recommenda-
tions 	of 	the 	iCir\o 	Ccurlt~; lraxi 	Task 	Force. 	In 	1986 	~carinaG
before 	the 	Task 	~orc0. 	~cur perceived 	pro~lems aS90ciat~d;with a
derogulated 	rna~~et were 	men~ioned: 	(1) 	~n 8~ce5s1ve number 	of
taxicabs; 	(21 	ur.dul.y 	la=ge 	fare 	cUscrepancl.es 	among 	cab~;
(3) 	1nsl.6ffi-=i""'~"lt: i.nc:ome 	for 	drive,-!; 	and 	()~r:ers; 	and 	(4) 	the 	poor
Cippearance 	and. 	s<:lfet'.y 	condi.ti.ons 	of 	t.:\xis. 12 	;'[e 	will 	briefly
examine 	each 	cf 	these 	concerns 	and 	consider 	whether 	they 	would 	be
cffect1voly 	addressed 	by 	the 	?rc~ose~ fare 	and 	9ntry 	restric-
tiO:1S.
A surplus 	of 	taxis 	may 	be 	c=eated when 	e~ist1ng fares 	r!s~
high 	enough 	to 	attract. 	[nany 	.,e',J 	ta>:is. 	'rhe 	nu:r.ber 	of 	cabg 	can
then 	~Q 	reducee 	in 	th:~~ W~Y5: 	[11 	by 	imposing 	entry 	restric-
tions, 	as 	in 	the 	proposed 	orc.i:1Clnce; 	(2) 	;.''/ 	~:aising license
costs; 	or 	(3) 	by 	lowering 	taxi 	fares. 	~he p~cposed Seattle
crd~nance imposes 	8n~ry restrictions 	based 	on 	population. 	Under
Section 	Q. 	the 	licenses 	issued 	may 	not 	normally 	exceed 	one 	for
every 	750 	~eop~e in 	the 	ci~y.
We 	believe 	that 	~he better 	solution 	lies 	in 	allowing
unregulated 	fa:s5 	(up 	to 	a 	max1~um 	fare] 	and 	open 	entry. 	This
appr08ch 	is 	likely 	to 	lead to 	a 	decline 	in 	taxi 	fares, 	which 	is
likely 	to 	lead. 	in. 	~uJ:n to 	som.;: 	tc:xis 	1 ca.vi..nr.: 	the 	market. 13 	This
is 	the 	only 	rem0dy 	that 	would 	benefi~ consumers; 	it 	would 	lead 	to
the 	lower 	fareB 	mentioned 	above_ 	It 	is 	also 	the 	most 	self-
enforcing 	of 	the 	remedies. 	A 	freely 	competitive 	market 	will
determine 	the 	appropriate 	number of 	taxis 	desired 	by consumers
through 	cont.1 01.:0.1 	adj us tments 	of 	fares. 	Hhen 	there 	are 	more
taxis 	at 	the 	Qx~gting fare 	than 	consumers 	can 	effectively 	use,
-------------
12 	There 	seamed 	to 	be 	general 	agreement 	tha~ the 	existing
number 	of 	taxis 	waG 	larger 	th~n needed, 	61thcugh 	there 	appeared
to 	be 	less 	of 	ft 	eonaensus 	regarding 	the 	seriousness, 	or 	even 	the
eX1atenc6, 	of 	the 	o~her three 	problems.
13 	The 	Kin~ County 	Task 	Force 	heard 	tGEtimony 	to 	the 	Qffec~
that 	if 	fdreS~arQ not 	increased; 	the 	number 	of 	cabs 	operating
wi11 	decline. 	Thin 	15 	a 	natural 	cccur~enca and 	does 	not 	call 	for
ra-requl a t.1on.

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CQmp$t~tion 	will 	drive 	down 	E3r~D and 	Borne 	taxi 	owners 	will 	find
t:hoi r 	capi tal 	i ~ 	b'?<t':tJ~ 1~ i nveri t,ed 	1".1 Gewhe ':1'1. 	ConverselyI 	when 	the
number 	of 	taxis 	is 	in.ufflcient. 	fares 	will 	be 	bid 	to 	higher
lWllels, 	thus 	at:t:.!C'H::t:ing 	new 	c,31JtL
Total 	deregulation 	of 	taxicabs 	in 	Seattle 	and 	King 	County
d~d 	lead 	to 	fare 	discrepancios. 	and 	to 	somo 	very 	high 	fares.
mainly 	at 	the 	a~rpor~ and 	among 	independent 	taxis 	oneratino 	at
clib 	!..ittu:ds. 	A 	f:3.X'st-in-firBt-out: 	ta:<i 	11:18 	a,"'\d 	lack 	of 	consumer
ir<fo:::mation 	mace: 	this 	l-H-,gment 	of 	tho 	mal':ket 	1885 	co:npetit.1ve.
7hcs~ high 	tarRs. 	but 	especially 	the 	fare 	discrepancies. 	led 	tq
;:lany 	ccnsume~ complai.nt~j:. 	Sea,tt;le 	solved 	this 	problem 	by
oB~ablishing a 	ceiling 	on 	fares, 	set 	se 	as 	to 	eliminate 	the
Dxcremo 	fares. 	while 	still 	per~itting lower 	fares 	brought 	about
by 	competition. 	FBfe 	discrepancies 	are, 	apparently. 	no 	longer a
p::oblem 	in 	Seat:t:l~:... 4
Nothing 	in 	the 	proposed 	ordinance 	will 	improve 	the 	welfare
of 	taxi 	dri vers 	who 	do 	not 	Q'"m 	thel r 	c~.bs. 	'X'!1si r 	wages. 	'-1hether
1n 	the 	form 	of 	nn 	hO~lrly wage 	or 	the 	more 	usual 	distribution 	of
revenue 	remaining 	after 	payment 	of 	expenses, 	are 	governed 	by 	the
s uppl y 	and 	demand 	fot: 	t_3xi 	d:d. vers. 	E~try r.F.:9 t.ri ct:ions 	on 	t:he
number 	of 	cabs 	will, 	over 	time, 	reduce 	the 	demand 	for 	drivers,
but. 	will 	not: 	increase 	thair 	wag,:Hl. 	Since 	the 	supply 	of 	drivers
is 	quite 	larg€ 	at 	the 	existing 	wage 	level 	(i.~Sl.• 	is 	elastic). 	a
d6cr~ase 	in 	demand 	for 	drivers 	will 	probBbly 	leave 	t.heir 	wages
unchanged, 	although 	fewer 	dr~verA will 	be 	employed. 	Each
regulated 	cab will 	be 	busier 	and 	earn 	more. 	Howeverl 	owners 	may
raise 	the 	rentn~ fee 	cf 	the 	cab 	GO 	that 	the 	driver's 	compensation
remains 	~t the 	competitive 	level.
There 	is 	no 	dou~t that 	raxisting 	.o','neL~ will 	benefit 	from 	the
proposed 	ordinance. l~ 	Current 	taxicab 	licenses 	have 	no 	market-
able 	value 	because 	there 	is 	open 	entry 	into 	the 	Seattle 	market.
W1th 	entry 	restrictiono 	imposed, 	the 	taxicab 	owne~ s 	license 	will
14 	Staff 	of 	the 	Seattle 	Regional 	Office 	of 	the 	Federal 	Tr~de
Commission 	contact.ed 	agencico 	that 	register 	consumer taxi
complainte 	in 	1930, 	1982, 	1.986 	and 	1907 	t;:o determine 	the 	type 	and
number of 	complaints 	r@ce1ved.
15 	License 	ownO~9 might 	no~ benefit 	if 	the 	city 	initially Gold
the 	rights -tc·~f:te:r-v6 to 	thIS 	hj.ghe:!t 	bidoc'!J;:", 	Q1.:.- i.f 	the 	maximulil 	fAre
were 	set 	ao 	low thDt 	.ven with 	a 	reduce& 	number of 	cabs l 	profits
would 	not 	Qx1st. 	Neither of 	these 	Hccnarioe 	is 	envisioned by 	the
propo~ed ordinnnca.
~__11lI I &rlllli

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17
: e
becQiT10 	a 	valua.b3.e 	o5(;S'.l-1:. 16 	Inc;-::.:;i'!.s:J.;;:g 	the 	HeJ.f.a;.::e 	of 	taxi. 	OWnf!!r.z
in 	t:::',i.s 	mar:.nG::~ 	tl0~-l<3Ver, CO:'i ::)nly 	occur 	c~~: th,e 	tJ}.(PQnso 	of
consumer6 	since 	the 	v~l~~ of 	thDt 	11cense 	will 	lead 	to 	higher
fn~-e5 to 	Co!".. S\J~~:ers. 	t-tc·r:c·:::ve~f 	~".:cr:5~.~!.'\e:':3 	\~i,1.1 	3uf::e,r 	.~nc.::..-eased
wai~ing time 	as 	fewer 	cabs 	beccms 	aV3ilable. 	~u~ther. 	Kdmi~is
tra~ion of 	~ne ordinance 	will 	i~sei~ be 	costly, 	and 	th9 	wolfare
c: 	tZlxi 	o\vners 	will 	thG-::e~o:::~ :.:l:-:=r2ase 	by 	a:1 ,3!7".Cl.:n':. 	s::1allf.~r r.nan
t:~e r.u.r:r\ done 	to 	conS'-lrra~~s. l! 	.r;;"~L.,l.~?, t:bo 	or::inanc6 	W'.:....ll 	harm
~otent~al f~t~re ent=ancs 	:~~o i:~e ~a~~ 	~U~~(~t ~!:c a=e 	nxcJ.:.lcied
by 	the 	e~t:ry res't.ric".:i.':"~!l.s. 	7!-;{~t-je· pO·-':cntia.J. 	(~'itr:·lnts. bei.ng
~nknown6 	a~e ~ithc'~1: a 	~:cica ~~~ ~~~~B 	i~rcc8e6i.~~3, 	bt:t 	thlj 	har~
"Co 	them 	is 	ncne-;::1ele3B 	rea':'.
We 	are 	a~arG c~ ~o ev~~e~c~ ~ro~ the 	Ki~g County 	7axi 	'ras~
Fc~ce proceedings 	or 	ot~Qr~i5A s~o~:ing t~1~t ia=fi 	~nd e~~~y
rest.=i:.:~icr.. s 	tV':.l.t 	:_rr~Fr:::·je ":2:"~:_C:~:-: a:;::peari:lI:cs 	0:: sn:et"./. ~b 	S~fet.··/
can 	be 	con~=olled ~uch ~~crc et~ec~ively a:~ci ~f~~ciant!y th=cugh
direct 	regu~atiorl u;l~e~ o~he~ SG~~~o:)S c~ 	t~G p=opcsed 	c~~1nance.
Sin,ilar':'.I" 	~o the 	extG~~t ~i"1?'.L 'C.r.e 	~~_ty 	cct"'.!.clt:-des 	t:lat: 	3.:Pgearal1l:e
of 	taxis 	is 	a 	conce=r., 	it 	shc~ld d~rec~ly add;.ese 	~h~t ~rocle~
rat~e~ t~an enact 	price 	6~d entry 	controls.
Section 	5 	of 	the 	fro~csBd ordinance 	prohibi~s the 	sale 	or
transfer 	of 	taxi 	~icer.~es. 	T~6 Gec~ion ~lso st~tes that 	ther.e
shall 	be 	no 	"medallion va~ueN 	to 	a 	taxicab 	license. 	Nor.ethcleS5,
medallions 	will 	acquire 	~aiue if 	entry 	ie 	constrained 	and 	fa:es
a=e 	set 	a~ove the 	competitive 	rate. 	When 	fa~6s are 	above 	the
competitive 	level 	and 	er.~=y is 	restrict~d, the 	value 	represented
by 	the 	excess 	pz:-ofi.ts 	:Oeco:l~cs capitalized 	in 	the 	val'l6 	of 	the
In 	New York City, 	for 	example, 	the 	selling price 	of 	a 	taxi
medallion 	is 	in 	the 	=~nge of 	$100,000. 	New 	YQrk Tim9S. 	June 	4,
1966, 	at 	B2.
The 	gain 	to 	che 	owners 	will 	be 	lesa 	than 	the 	increase 	in
revenues 	because 	they will 	bear aome 	of 	the 	administrative 	costb.
Con~umer injury 	will 	arise 	from 	the 	higher 	prices 	charged 	plus
the 	10Ba 	of 	taxi 	services 	to 	potential 	riders 	who 	are 	priced out
of 	t:hl.) 	market.
In 	the 	absenco 	of 	price 	competition. 	owners 	might 	compete
on 	tha 	basis 	of 	appearance. or 	safety" 	However, 	there 	Ie 	little
.t"eaeon to 	believe 	that 	an')' eigni ficant 	imprOVGf1tent 	would 	oc.c:u.r.
~ 	[o'"r.ankena 	a.nd 	Paut],nr, 	!..!'Ui.L~_~_tL.~...a..tj,..Q..n: 	t\o 	Economic
~l};'=i..:it in 	9 	Reeear:ch 	in Law and 	Economics 	146, 	147 	(a. 	Zerbe
ed. 	1986).
'li
':":.•' ifc"

PAGE: 009 OF 011
Jane 	NolAnd
.1ul y 	31, 	1987
Page 	7
m.dallion. 	Llcen!Hil 	h::.Ilders 	would 	then 	havf> 	a 	significant:
incentive 	to 	pr8ven~ ~ho 1055 	of 	a 	license. 	SinC6 	the 	value 	of
the 	mQd~llion can 	only 	be 	realized 	by 	operating 	the 	cab 	and 	not
by sell1ng 	the 	medall~on, owners 	who would 	otherwise 	sell 	their
liccnGe~ 	(perhaps 	to 	undertake 	ather, 	bette~ business 	ventures)
w:ll 	in~tead keep 	them 	to 	avoid 	10 8 1ng 	the 	medallion 	value, 	and
thereby 	prevQnt 	new, 	more 	efficient 	ownere 	from 	acquiring
ilcen~os.
",,-5 	ha~mful 	as 	a 	rf'jst.:,:icts::l 	ent::y 	policy 	is, 	Buch 	a 	policy 	is
leS8 	objectionable 	when 	medallio~s are 	freely 	t~ansferablr than
whan 	such 	transfers 	~re prohibited. 	Disallowina 	transfers 	will
reuult 	1n 	e~tho~ 1nefficiBnt 	ownership 	or 	1n 	le~al 	sUb~erfuges_
seeking 	to 	transfer 	medallions.
Sec~ion 7 	of 	the 	proposed 	o:dinBnce 	would 	allow 	the 	Director
of 	Licenses 	and 	Consumer 	Affairs 	to 	require 	thQ 	installation 	of
new 	taxi 	metQrs 	capabla 	of 	s·co.:cing 	infOJ::mr.l,tior'.. 	The 	Direct.or 	may
~lso require 	lic0nseefi 	to 	fil~ a 	considerable 	amount 	of 	largely
unsp8cified 	financial 	info::",ation, 	and 	an 	annual 	report 	with 	a
certificate 	of 	review 	by 	a 	certified 	pUblic 	acroountant.. 	These
requirements 	might 	be 	justified 	under 	certain 	conditions.
HowQver. 	1n assessing 	their 	valu~. 	it 	should 	be 	realized 	that 	the
requirements 	could 	impose 	beth 	substantial 	costs 	on 	taxi 	owners
(which 	they 	may 	paBs 	on 	to 	consumers) 	and 	on 	the 	cit.y 	as 	well.
The 	proposed 	ordinance 	also 	18~ves open 	a 	number 	of 	difficult
~pecific questions 	th~t will 	ariee 	if 	far.es 	ar.e 	set 	on 	the 	basis
of 	CQl1'Its. 	The,so 	qvesU.. ons 	include 	what 	rate 	i.s 	t.o 	be 	used 	in
calculating 	th~ wage 	co~ts of 	owner-driver~ and 	how 	this 	imputed
wage 	rnt~ 1s 	~c be 	changed when 	necessary. 	Providing 	answers 	to
these 	quost~onB may 	be 	costly.
The 	considerations 	for 	fare 	setting 	under 	Section 	1 	of 	the
proposed 	ordinanco 	are 	quite 	general. 	There 	are 	no 	gUidelines
ensuring 	that 	the 	level 	of 	faroe 	will 	be 	compe~itive. 	There 	1s
instead 	a 	return 	to 	the 	same 	type 	of 	·public 	convenience 	and
nec8ssity· 	scheme 	of 	fare 	setting 	that 	ex1~tad before 	deregu1a-
tion 	and 	that 	proved 	unsatisf~cto~y then.
F. 	Conol\is1QU
In 	summary, 	we 	believe 	the 	proposed 	Saattle 	ordinance
addrassea 	largely 	nonexistent 	problem3, 	yet 	WQuld 	impose
aubstantial 	coats. 	R~otricting the 	numbor 	of 	taxicabs 	or 	se~t~nq
minimum 	fares 	can ba 	8xpQcted 	to 	hurt 	r3ther 	than hQlp consumers
and 	compQtiticn. 	It 	will 	~9pBc1ally harm 	the 	disadvantaq~d
Ijfro\lpu 	that: 	must 	rely {nost 	h~avi.ly on 	t.i:u:ic,ab 	tr.ansportat.l.on. 	but
S£:Sl ..... ,lS6""J~L0
~~-,.~..lalallj---...__IilI/alt.:lllillI.__·iii··IlI_=.·l!!:.~ii.ili··r,;rlo~aJllIQ;li-;;.··1Aotl1Q;-~~~-_~~··l.i·~··g1~.ti°."·ili··:;:i··:·!·iii·~:;ii··:ii·~;~:1;:;'""ij~i£~.:~·~~'··~·~itii~·;:I·:~::.;~:·~.~·:·:iii/i-·-:~··I~:".::·\.::i~~J,i\.';~i~'>~·~·1I1
I
I
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2/22/:004 11:42 N1 	FROM: Fas :::. ror. nountain 	Tel: 120::'3263:2::-; 	PAGE: 010 OF 011
Jane 	Noland
Ju~ y 	31, 	1987
Page 	6 ".
fot." whom d.i$count 	'fCir'SS 	will 	n.o\: 	Lie 	<1v<,d.l!l.bLc. 	W(l 	therefore 	urge
the 	Council 	not 	to 	establish 	minimum 	tax~ 	farG~ or 	to 	restrict
entry 	in 	SQattlA. 	w~ 	do 	not 	cbjsct. 	howRv8r. 	to 	narrowly-
~ailored regulation6 	specifically 	~esig~ed to 	8nsure 	quality 	an~
~aiQty s~andards, 	eucll 	as 	manda~orY'driver train~ng classos.
WQ 	have 	focused 	our 	ccm~onts cn 	the 	porticns 	of 	tho 	proposed
ordinanco 	t~a~ appQKr 	to 	have 	an 	iduntifiab~0 nnticcmpotiti~G
ir.1pac~_. 	~N~} E:-.;.p.::-es8 	no 	o~.l..nicn ()r. 	:-:'l":G 	::-r;[!\al.r;;..~,S 	;-;rovisicns 	c:': 	th,-~
c::d.i.nance. 	;';'2 	r:opc 	ti;.i\t: 	C'~... ~~ CC'::·~filt?'t-.;..:.s \vJ.1.1 	~~si~jt. YO\J 	it) 	your
d.el.ibe=.:i~':"o:~BI and 	\','(1 	apprec:-al:u 	:::lG 	o!"'r),=,r't~~r'1.i't? ':0 	Pr.:Q~~/~f-.'::. ()U~
v .... ews.
s ~. nee r ely ..
R1 t,~hi1rd (). 	~~e~~'D6J 	oJ r.
::co~c':i'alst
!'.':.tochment
SiU!\ji.IIl!l•• 	IIII._.._~!ol!!!t:~IlIB 	IIl~•• 	•.,-.'5 	.,lll"!O'iIl_DllI 	_