FTC Staff Comment to the Massachusetts Department of Public Utilities, Transportation Division Concerning the Issuance of Additional Taxicab Medallions in Boston

V890038
Mm. 	M,i1~'gi1r~t 	llyneh
H:i!)AXinij'E:j(WlIin$:t'
~~pa~~];"YJ\'t Q'f 	Public 	Utilit.i~:$
T;g;~n~:";i;j.~'t.ation Oivi~ion.
100 	c~~~ridg~ St?a~t
BQ$ton l 	Mas3~chu~stts
COMMISSION AUTHORIZED
''Ph#ii 	st<iff' of 	t}1~ Faderal 	Trade 	Corn.mia~ion i6 	plea;s<.>d 	~,;;;
subm1t, 	cQm..ul~nis cOilc~rnin9 t.h.£! 	iasuanc~ 	of 	additloJ'lalt.,a:~';,.tc;'l;:;
"''''~'r~n'''' I ''''f'<'''' 	i"" 	~h"" r'it,v 	.",,"P 	R""'''''''''r,,,,,, 	"..,.',.~""''''' Sl~d 	""~'''~ 	?>h·~ 	"""'-'r~,,","~	.!~·~;;g~::;..).·~-_t,.··>.:~.J.i4-9 ~ &:. 	J....1u 	~~.~ J. 	~.:t., ,~>{~~~·">.J,1'1 	V·~:>•.t:.. 	~[? 	~v¥~ 	~.!:-~ ~y.~"b:r"J_~~.
2, ~,,7 ~;~L Q'; 	1 , 525 ~ 	Thig;ll~'iSll was 	eatabliahtid by 	l:a'fl 	in. 	1.9 34 J 	2.T~j
}\;~l'~ :ra:iJH~ined ufi{;han;.li'ad 	5incethsn. 2 	%'.~ }:;-<elieva t.hat 	th~
iiUlthQ1:i'1~t.iQn of 	addit.ional 	medallions 	and the 	B.s90ciat:ad
J..r;'C:;~(,~iiT~ in 	taxi 	$:&rvie.a w!,)'J.ld 	ban~£it conZHLm~ra.
. 	V~Lr~u~lly 	~ll 	major 	fi!J.ctors 	affect,in'\} tha 	ct~m~nd fer!;:,;'.;,;:.
'j .~ ,T::V J,'::;;E4;"~ J.J). Bo~ton have 	grO'l<\?ll 	tram~:ndou81y ;s L1C 1:;; (.;-. '.~ '~'.: ':;;'~:~: :-\ ':
;,;;~;1fc;e~rr of 	madalllon21 	w,a6 	s~t 	in 	1934. 	This 	g'~:',: 	",' ",';
Lp,;;l.'~{!~.es 	int1:te 	nlll1',,'bwi: of 	eID:ploY1;3~S and ho't';f.! 1~--
'i'r~)l',;u,",;l-a of 	of~fic:83P{'ACEL 	At. 	the 	~ameg time, 	a 	p,r,f;:~_i..,'.:,·.; .. :, 	'..,'j-,;i, .. :,._
,;i~,,'i!~lin~ in 	taxi 	~~ir:rV'ice~ has 	int;'·;;m.vi.?-ilancad C9iHinJ.;; 	"; 	'; _i:';-; 	,,~::.
'Jb' Otl.~:S . report~ng 	l~nQthy 	d~:)l a:ra 	{l,,;j 	"no 	~hc..., 'A 	cabs.. 	::'i-:1);::F;
~>;)n'~:H:t.l,OIUJ 	pol.nt 	'to 	th'S 	T{£: .:::1 	J:ore.~{pan(l{j!otaxi 	5;~t'YH'::~ 	~.~
.,,,,,-~.~.;, 	t1-.·... ·t 	.".."",,,,,olPri""t,l""n 	+""''''' 	"",-"-,...... """, 	""",\"',.. 	",.",~.,,, .,..."";;;;~,,,-	,~,:i,i,';.JtJ~i11:P~il4~ 	,.L,·~fiiI~ 	w 	,.L-&~';J ¥.J.~;~ .....;.~UUif~~ 	¥,* 	~utog .li.~~~i,.~)Ilj:---J ~td{.,.I--,~,.,
GOTUIHllTlarID. 	As 	a 	result 	of 	the 	restricticnll 	on 	'ti-:ii!: 	n.mrJ.:
G4:Q~, 	COf.\..s\liJlsrs 	i!Ju:ffliir 	from 	lowe';::, 	Bsrvica 	lev815t.h~n ~1'k..
),;.;~d"9:r opGn ent:t'Y, 	and 	they 	appe<'.lI' to 	pay higher 	prii ::£3s,
~h~ l1E'1xk~t. value of 	m~d-allionsl liil 	astimat,,:t-lth>!!.:.! 	tH." 	n 	<,;<'
th<B 	r~.zlt.J:ict.iQn.t5 	on 	the 	'tj,!limrH;iIJ::' 	oft,.e,::.K.icabiiS 1 	Beaton's 	{;·::~,-,,'..'l';':';';,.,
may 	p~y an 9:2timated 	$14.5 	million 	:p~r year 	in 	~.ui:C~,:;a~ :>",
1 	:t'h~~-e co~,m~U'lt8 are 	the 	Vi~ij:f:$ of 	f.D.i!;! 	sea t ~: 	'~>'£I ~eo·::t()T';
R-~lg,i{~lrlA.l Of:fJ~c~ 	aJ1;:~ the 	'f3u.1:-e:aLl ~~~f -:t}:onom.le~ 	0:£ 	th~ 	;?2)·~1n=.J!1 "2:·~'~:,--;~.1~
Co,:o\mi21ision. 	Th.ey 	are 	not 	nscQ8~a:ri.1¥ th£J 	v.ie'!;1;5 	of 	t.,l-;,E: 	CCi;;;,;:;,":.. BiJ L;n1
r;:-~c~" .:!. 	any 	ind.lvidual 	Commissioner.
')
.. 	'~>J'~ ~lrld~fk~z~:~t,and ·thi}~1;, aJ\ 	j"nzj.lll11i'l1a·l,~ 	"R.Ql::-ert 	X,,,.;:t~ 	:·~:i··.-.-'> 	~:.~:~
~Y~>~0'41~(~ 	'tJ1~~ 'deci8ic~~ 	·o:f 	th:,3 	:rt~VJ1~TL~:i'~/ {:.t:i.z·r.i;~F;·a Uttit 	of 	'~.:~:..~'~ 3t:"j.fl
T- 	, ~ ....... 	·D·~·~ ~ ~•.> ,., .- 	"" 	.-< .,•."'\.~ ~ 'TI'C'1 h·: "'. 	""'= "7\' .~ '" ';' 	.;;; (; '.... 	- 	1., ::l> '"' l~n ...,. p 	l';'~' : > :., ,,', 	.:~••;1	~O.l,,~~1~ 	.k~f:J·t'j, ..:... ~:U~...;tn.~ ~,a.;~.~.s....t _h..1 "'~ L-J..,9 	"-~,g~~~,,,".:~~. J., ."' .•1... r.J 	jl';.~f\. ,':.~.. ~" .,.. ~. ...,...._~-.- ,~
'the 	\It'c'I'l!.l'':\da 	-tha:t 	t~11~lr·~ ara 	n~) mi:)clal1it"J!1t~ D.":~?-2,il aJ)le 	:tc.)t' 	.~-~~ Z ·.:·£t~-·1~:::3 j
?ur~uilnt 	t.O 	Mr. 	Lynch's 	app;eal! 	th~ Traniaportat.ion 	DivlsJ.cm 	elf
';::;h~ D~pi,u:t:.m%H1t of 	Public 	U't"ilities 	(IIDPU") 	has 	b8:SJ1 	hold:Lj'1ij
i~;i$~.J=:i.ng~L~ -t f-~) f.: ~~! t·8:;;"1'Gi.. r£~) ~;tl~t:h'~r 	:0:: ~l~:Yt tv 	r.~-L1t"ricr_1. 2~~ 	ti1..~21 ~i ~ ;'3~1.n ntJ e 	c~f
~lti(1_it~--i(:-;~~~1 ·,~~:·-~l~~ill1i;~r:·}~"
..-
ET::: . d 	[(:,~J~::~2),J'3C1 tT~7E:13[c~L L T9

eoata 	of 	the 	.ervica 	they 	receive each year. 	In 	the 	comments
th~t follow, 	we 	explain why 	we 	believe 	con3~~6rs would 	be 	well
served by 	an 	increase 	in 	the number 	of 	medallions 	authoriaed 	and
best 	served 	by completely 	unreatrietad entry 	of 	additional 	cabs
into 	the 	Boston taxicab 	market.
1. 	Jnt$~est ADd 	Bxps~LenQe 	Qf 	the 	Federal 	Trade
CpPUD1a I J,.on
Th~ Pederal 	Trade 	Commission is 	charged by 	statute with
preventing 	unfair 	competition 	and unfair 	acts 	and practiess. 3
The staff 	of 	the 	Comaission, 	upon 	request 	by 	federal, 	stata, 	and
local 	governmental 	bodies, 	analyzes 	regulatory-proposals 	to
identify 	proviaions 	that 	may 	impede 	competition or 	increase 	coats
withou~ providing countervailing benefits 	to 	consumers. 	As 	part
of 	thl. 	effort, 	the .taff 	has 	submitted 	comments 	on taxicab
regulation 	to 	the 	city 	governments 	of 	Cambridge, 	XA; 	AnchoragQ,
AK; 	Chicago, 	IL; 	New York, 	NY; 	San Francisco, 	CA; 	and 	the
D1.trie~ of 	Columbi•.
In 	1984, 	the 	Commission 	released 	an extensive 	report 	by 	its
Buxeau of 	Economics, 	boeed on 	a 	review 	ot 	taxicab 	regulation 	in
cities 	th~ou9hout the 	country. 	entitled 	"An Economic 	Analysis 	of
T.xicab 	Regulation~ (~Taxicab Regulation" 	or 	"the Report") (coP¥
attached). 	A principal 	conclusion of 	this 	Report 	is 	that 	no
persuasive 	econQ~ie rationale 	exists 	fir 	regulations 	that
restrict 	the.total 	number 	of 	taxicabs.
We will 	first 	address 	some 	likely effects 	of 	taxicab 	entry
re~trictions in SOston. 	Subsequent 	sections 	will 	discuss 	the
potentiAl 	benefits 	of 	increasing the 	number 	of 	medallions 	and 	the
arguments 	typically raised 	against 	such 	increases.
2 • 	Beaton I. 	lIMed far 	Mpta TOJd.cags
Currently, 	Boston 	has 	1,525 	taxicabs 	medalliorus, 	the 	same
number 	initially 	issued 	in 	1934. 	However, 	Boston bas
experIenced dramAtic 	demographic 	changes 	since 	1934, 	most
notably 	significant 	increases 	in employment, 	office 	space, 	and
tourist 	and convention 	trade. 	These changes 	suggest 	that
consumers 	would gain 	significantly 	from 	an 	increase 	in 	the 	number
of 	cabs 	p$rmi~ted to 	operate 	in 	the 	city.
A 1987 	study conducted by 	the Hackney 	Division of 	the 	Boaton
Police 	Department 	(-Hackney Study'·) 	found 	that 	although 	the
3 	See 	15 	U.S.C. 	S41 	et 	seq.
4 	The Report 	supports, 	in principle, 	other kinds 	of
taxicab 	regulations 	dealing ~ith vehicle 	safety 	and 	liability
ineux-ance.
2
HOlS08 ::'U.:J

resident 	population 	in Boston 	had decreased sinee 	1934, 	during
the 	work week 	the 	total 	population ~a8 more 	~han ~wice the
resident 	population. 	Further, 	other 	relevant 	indicators 	--
employeeo, 	hotel 	rooms, 	and office 	apace 	-- 	had 	increased
significantly 	eine! 	1934 	and were 	expected 	to 	continue 	to 	grow 	in
the 	years 	to 	come. 	The 	following 	fiquree 	trom 	the 	Hackney 	Study
reflee~ the•• 	inereaseaa
1US. 	118.5. 	1±.L:
Offioe 	Space
(sq. 	ft.) 	22,610,000 	50,,590,558 	+123\
Employe•• 	355,346 	(1930) 	594,000 	+ 	67\
Hotel 	Rooms 	3,049 	/12,288 	-+303\
populat.ion 	781,188 	601,095* 	- 	23\
-
Taxi Medallions 	1,525 	1,525 	0%
*This 	figure 	doubl•• 	during 	the 	'Work week.
The 	increase 	in 	the 	demand 	for 	taxis 	cre~ted by this 	growth,
coupled with th~limit of 	1,525 	cabs, 	has 	led to 	increased
waiting 	times 	and :efusals 	of 	service. 6
5 	For example, 	in 	1987 	Boston had 	12,298 	hotel 	rooms. 	An
additional 	3,500 	hotel 	roo~ are 	projected 	to be 	built 	by 	the
year 	2000. 	Hackney st»d¥, 	p. 	6. 	According 	to the 	Massachusetts
Hotel/Hotel 	A••cciation, 	in 	1987 	Boeton experienced 	the 	highest
hotel 	occupancy rate 	of 	any major city 	in 	the country.
6 	The 	limit 	on the 	number of 	medallions 	interacts 	v~th
fare 	regulation 	and other 	taxi 	rules 	to 	prodQoe 	the 	level 	of
aervice we observe 	in Boston. 	With 	cab 	numbers 	held 	below 	the
free~en~ry level, 	fare 	re9Ul~tion may give 	taxi 	drivers 	added
incentives 	to 	refuse 	service 	to 	particular 	riders 	(e.g., 	those
who 	ue 	expected to 	be 	poor 	tippers 	or want 	rides 	to
neighborhoods 	with 	low tAXi 	demand) 	even 	if 	the 	regulated 	fares
cover the 	cost 	of 	providing 	the 	service. 	Since 	taxi 	drivers 	will
have 	a 	larger 	number of 	alternative 	customers 	to 	transport, 	they
have 	an 	incentive 	to 	choose 	to 	serve those 	euetomers 	who 	provide
the 	greatest expected profit. 	Conversely, 	if 	there 	were 	no 	entry
constraint, 	taxis 	would have 	fewer 	alternatives 	per 	cab 	and 	a
greater 	incentive 	to 	provide 	service 	to 	all 	customers 	for 	whom
t.he 	fare 	exceeded the 	cost 	of 	providinq the 	service.
Of 	course, 	taxis 	may 	never 	freely 	Ch008Q 	to 	serve 	those
customers 	for 	whom 	the 	regulated 	fare 	is 	below the 	coat 	of
p~ovidin9 the 	service. 	In 	such 	situations, 	allowing 	surcharges
3
r,HLSCi8 :::H.:::J .0~:~1 	6861/pc/pO

·.
The 	deterioration of 	Boaton's 	taxi 	service was 	documented 	in
the 	Hac~ney Study, 	which 	surveyed 	a 	number of 	groups 	most
dir$ctly 	affected by the 	shortage 	of 	taxi 	service, 	including 	the
elderly, 	retail 	and 	tourist 	aS8ociations, 	the 	convention 	trade,
hospitals, 	and colle9•• 	and universitiea. 	Seventy 	percent 	of
elderly respondents 	in 	the 	Hackney 	Study 	reported 	"extreme
distre•• " at 	the 	lenqth of 	the 	wait 	~or a 	taxi 	sent 	by radio
dispatch, 	which 	AX.raged 	30 	minutes. 	Twenty-seven 	percent 	of
the elderly 	had been refused 	service 	by 	a 	dispatcher 	or cab
driver, 	and 	forty~four percent 	reported 	that 	after 	waiting 	30
minutes 	or mo~e, 	the 	cab 	they 	had 	requeste4 	failed 	to 	show 	up.8
Other 	groups 	experience problems 	8S 	well. 	The Massachusetts
Hotel/Motel 	A$sociation 	reported 	that 	for 	most 	of 	the 	time
hotels 	do 	not 	have cabs 	waiting 	and 	that 	hotel 	patrons
experience delays 	in obtaining 	cabs. 	The 	two major 	trade
show/convention centers 	(Baysid$ 	and 	World 	Trade 	Center)
reported 	frequent 	and excessive 	delays, 	~no show" 	cabs, 	and
inability to 	even get 	through 	to 	a 	cab company 	to 	request 	a 	cab.
Retail 	groups, 	tourist 	attractions, 	colleg8s 	and 	universities,
and 	hospitals 	also 	reported deltys, 	"no 	shows," 	and 	general
unavailability 	of 	taxi 	service. 	Inadequate 	taxi 	service
per.lets 	because 	additional 	cab. 	are 	not 	permitted 	to 	serve
Doaton.
The 	current 	market 	value 	of 	a 	Boston 	taxicab 	medallion, 	aio
high .s 	$95,000, 	is 	evidence of 	an 	inadequate 	supply of 	taxis.
may 	be 	the 	only means 	of 	improving 	the 	quantity of 	service. 	For
a 	diacu.sion of 	this 	issue, 	see 	TA~CAb RegulatiQn, 	pp. 	83-97,
•• p. 	94.
7. 	The 	elderly often depend on 	~axi transportation 	to 	get
to 	and 	from 	medical 	appointments 	and 	treatments,
8 	HACkney Stud¥, 	p. 	5 	(copy attached). 	In 	part, 	service
refusals 	to 	senior citizens 	may have 	been 	caused by 	the 	mandatory
discounts 	required by the 	City. 	While 	the 	d1scount8, stem 	from
an 	admirable 	sentiment, 	they 	reduce 	the 	profitability of
providing taxi 	service 	to 	this 	group 	of 	consumers. 	As 	a 	result,
senior citizens 	may be experiencing 	diminished 	levels 	of 	service,
albeit 	at 	"di8COunt~ fares. 	Direct 	subsidies 	from 	th$ 	City
w9uld 	PO 	an 	411;.curna~L'Ve 1n4iut.nm 	o£ 	r~""""l"It) QAninr 	r!it-.'! ~An8' 	cost
of 	taxicab 	trAnsportation 	and might 	result 	in 	less 	diminishment
of 	service 	to 	this 	group. 	San 	Diego, 	for 	example, 	has
successfully 	implemented 	such 	a 	program.
9
10
Hacknex Stud¥, 	PP. 	8-11.
The medallions 	were 	originally 	issued 	for 	a 	$50 	fee.
4
H01S08 :)1.::1

~
Such a 	higb 	price 	for .edalliona 	indicates 	that 	consumers 	pay
more 	than 	the 	cost ot 	the 	service 	that 	the 	taxi 	operators
supply. 	To 	estimate 	the 	magnitude 	of 	paymenta 	over 	cost 	for
current 	•• rvlee, 	•• 	calcula~e ~he annual 	stream of 	profit. 	to
taxi 	operators 	necessary 	to make 	the 	pu%Chase of 	• 	$95 	000
medallion worthwhile. 	At 	a 	10 	percent 	inter••t 	rate, Ii 	an annual
profit 	stream 	of 	$9,500 	would 	just 	repay 	the 	price 	of 	the
••dallion. 	That 	ia, 	a 	medallion 	holder 8Uat charge COn8~Qre
$9,'00 	• 	year 	above 	the 	costs 	of 	services 	to 	amortize 	the cost 	of
the 	medallion.. 	The 	e8timated 	annual 	payment 	over cost 	for 	Boston
consumer. 	i. 	$14.5 million 	($9,500 	x 	1,525 -.dallions). 	2
This 	regulation-induced 	payment 	over eost 	doe. 	not 	result
in 	b.tte~ service. 	The payment 	reflects 	a 	transfer 	of 	money 	from
consumers 	to 	medallion 	holder. 	.s 	a 	result 	of 	the 	gove~ntal
re.~riQtion.on the 	number of 	taxicab medallions. 	The 	OPU could
reduce 	this 	disparity 	by 	increasing ,the 	nuaber of 	medallions
available 	to 	taxicab drivers. 	Alternatively, 	the 	DPU could
entirely eliminate 	these extra costs 	by .1iminating restrictions
~est~!.i~iyi!8ieS!1~~sa!A~e!V!R~.*,ti8r&iiXuif~!8niOw8ftintain
allow 	new cilba 	to 	enter the market, 	and 	thereby 	reduce 	the 	3
revenue earned by each cab 	and 	the 	consumers' 	waiting 	time. 1
11 	The 	interest 	rate 	reflects 	either the 	rate 	at 	whieh 	the
taxicab operator could borrow 	the money or 	the 	rate 	that 	he
could. earn on 	an 	investment 	of 	a 	comparable 	awn of 	money. 	An
inter••t 	rate 	is 	a 	valid bas!e 	for 	comparison because 	the 	taxi
cab owner could r •••ll 	the medallion 	for 	cash 	and 	invest 	the
cash. 	A 	10 	percent 	rate 	is 	not 	inconsistent 	with current 	lonq-
~e~ bond rates. 	The 	annual 	profit 	needed would rise 	if 	interest
rate. 	were 	higher or 	fall 	if 	t.hey were 	lover.
12 	Zn addition 	to 	this 	transfer 	fro. 	conaumar. 	to 	taxicab
med.l1ion owners, -the 	ent~ restraints 	produce 	an 	additional
Mdeadweight 	welfare 	10 •• " that 	is 	not captured 	in 	the medallion
value. 	This 	"deadweight 108s" 	represent. 	the value 	of 	taxicab
eerv1ce 	that 	would be 	provided by operators 	who cannot 	now
enter. 	Additionally, 	waiting 	time 	costs 	t.posed 	on consumers 	by
the 	r ••trJ.ction 	on 	cabs may 	not 	be 	fully 	reflected 	in 	the
medallion 	value. 	Thus, 	the 	medallion 	value 	is 	a 	minimum
estiIPa'te of 	the 	loss 	to 	consumers 	from 	tax.i 	requlation. 	See
Tpx!CAb Begu1at1on, 	pp. 	105-111 •
. 13 	Currently, 	fares 	are 	regulated 	in 	Boeton. 	To 	realize
consumer gain. 	fully, 	open entry May have. to 	be coupled with 	fare
reform. 	See 	TAxiCAb Regulation, 	pp. 	45-52. 	Por 	example, 	fares
that 	are 	set 	at 	inappropriate 	levels 	can cause 	~egulatory
problema 	of 	their 	own, 	but 	as 	these problems 	emerge, 	they can be
addX'e8sed 	through changes 	in 	the 	fares. 	Fare. 	that 	fa11 	to 	cover
the 	cost of 	service 	will 	result 	in .ervice 	refusals, 	even 	if 	such
5
!'JOJ.soa Jl.::l

The 	real 	price 	is 	the 	price 	after 	taking 	inflation 	into
The main 	beneficiaries 	of 	Boston's 	medtllion 	restrictions
a~e the 	tAxicab 	owners 	who 	sold or 	can 	seil 	~heir medallions 	at
a 	higher 	real 	price 	than originally pAid. 	5 	Many of 	those 	who
sold thetr medallions 	for 	a 	profit 	may 	no 	longer operate 	in 	the
market. 	Cu~~ent operators 	who 	paid the 	full 	$95,000 	earn only 	a
compet!tive 	return 	on 	their 	inveatment. 16
As 	noted 	above, 	all 	significant 	indicators 	except 	resl~ent
population have 	increased dramatically 	in Boston 	since 	the
current medallion 	limit vas 	set 	in 	1934, 	and 	during 	th. 	york
week 	the 	total 	population 	is 	more 	than 	douhle 	the 	re8ident
population due 	to 	the 	influx of 	commuters 	from 	outlying 	areas.
HQst 	of 	these 	indicator. 	are 	projected to 	grow over 	the 	next 	few
years, 	exacerbating 	any problems 	now caused by 	the 	8hortage 	of
taxicab services 	in Boston. 	The 	DPU could 	increa8e 	the 	welfare
of 	Boaton's 	taxi 	customers 	by 	lifting entry 	restrictions 	in 	their
entirety. 	If 	open entry 	is 	not 	desirable or 	possible, 	the 	DPU
could 	ameliorate 	some 	of 	the 	consumer costs 	by 	iS8uing 	a
significant 	number 	of 	new medallions 'in order to 	increase 	taxicab
aervlee to 	th. 	city.
refusals 	a~e illegal. 	By contrast, 	fares 	that 	are 	set 	too 	high
generate 	so much entry that 	the 	cabs 	suffer reduced
productivity. 	In 	such c!.J:cUdlstanc8s, 	each cab 	services 	fewer
riders 	per day without 	generating 	a 	reduction 	in waiting-time
large 	enough 	to 	offset 	thelncreas8 	in 	the cost 	per 	ride. 	This
may become more 	apparent 	not 	only with open 	entry, 	but 	even 	in
situations 	where 	the 	number of medallions 	is 	increased. 	If 	the
nwnber of 	cabs 	is 	found 	to be 	excGssive, 	the 	City may 	then wish
to 	consider 	a 	reduction 	Ln 	its 	fares.
14 	Market 	transfers 	of 	medallions 	help 	to 	ensure 	that 	the
medallions 	qo 	to 	the 	lowest-cost 	prOViders. 	Prohibiting these
transfers would not 	eliRinAte 	the 	regulation-induced payments 	and
18 	likely 	to 	increase waste, 	serving 	to 	reduce 	service 	to 	consumers.
15
account.
16 	If 	Boston changed to 	a 	system of 	open entry 	or
1ncreased the 	number 	of .edallions, 	the 	current 	operators 	who
invested 	in medallions 	would 	10S9 their 	investment 	as 	the 	market
price 	of 	medallions 	fell. 	If 	the City 	g068 	to 	a 	system of 	open
or 	increa8ed entry, 	it aight 	wish to 	coneider 	some 	form 	of
compensation to 	existing medallion holders 	for 	losses 	from
unanticipated changes 	in 	regulation. 	We would expect 	the 	value
of 	the 	additional 	taxi 	services 	to consumers, 	which may be
coupled with possible 	fare 	reductions 	and discounts, 	to 	exceed
the 	looses 	suffered 	by current medallion holders.
6
L0"d 	£60c0990 vv£9[cL L19 	HOlS08 J.l=l

3. 	Tbe 	Penl~1ts 	at 	EliminAting Restrikt1QQI 	Qn 	tQft
TgtAl 	Number ot 	TA:&1s:Ata
The 	Bureau 	of 	Economics 	Report 	found 	that 	re.trictions 	on
the 	total 	number 	of 	taxicabs 	vaste 	resQurces, 	harm 	Qons~ers,
and, 	when coupled with 1nappropriately high 	f~ie.,17 impose 	a
disproportionate 	burden on 	low 	income 	people. 1 	Such
~••trictions 	have 	the moat 	significant negative effect 	on 	those
eon8umers who cle~nd 	moat on cabs 	for 	traneportat1on 	and 	the
procurement 	ot 	necessities, 	the 	handicapped, 	the 	poor, 	and 	the
elderly. 	These 	groups 	spend a 	larger 	proP9~ion of 	their
inCOQMit8 on taxi 	t.raneportation 	than 	do 	other 	segments 	ot 	the
general 	population. 	A study 	in 	Seattle 	indicates 	that
financially 	disadvantaged consumer8 	make up 	twenty-five 	percent
of 	total 	taxi 	ridership.
The 	conclusions 	of 	the 	Bureau 'of 	Economics 	Report 	are 	not
unique. 	Another 	IIt~dy, couani88ioned by the U. S. 	Department of
T~an.poxtation, concluded that 	the 	combination of 	restraints 	on
entry of 	new cab8 	and regulations 	preventing 	fare 	discounting
cost 	con.umers 	nearly 	$800 	million 	annually 	and the 	loss 	of
38,000 	jobs 	in 	the 	taxi 	indu8try.19 	An 	increase 	in 	the 	number of
.ed.lliona 	issuea 	for 	the 	City of 	Boston, 	or complete 	removal 	of
~e.triction8 on 	the 	number of 	taxicabs, 	is 	likely 	to both
benefit 	consumer. 	and 	increase employment 	opportunities 	in
Boston.
The 	benefits 	of 	easing 	taxi 	restrictions 	are 	not 	theoretical
they are 	real 	and immediate. 	For 	example, 	Seattle eliminated
17 	aven though 	fares 	are 	J:$qulated 	in Bost.on, 	these 	faros
.oy be 	high 	relative 	to 	those 	that 	would exist 	in 	a 	competitive
taxicab market. 	Xore 	taxicabs 	may 	not 	only reduce waiting-time
but 	may also provide 	incentive8 	for 	greater price 	competition •.
Even 	if 	it 	ia 	not 	desirable 	to 	reduce 	the 	level 	of 	the 	set 	fares,
the 	current prohibition against 	fare 	di8counting 	harms 	Boston'S
COMwnera. 	Coupling 	an 	increased. 	supply 	of 	taxicab8 	wit.h 	the
liberty to engage 	in 	fare 	discounting would benefit 	all 	of
Boaton's 	con8umers. 	We 	are 	aware 	that 	the 	Department of 	Public
Uti1itiea 	ia 	not 	cons1derin9 taxicab 	fare 	structures 	in 	this
hearing. 	Coordination of 	tare 	and entry 	reform would, 	however,
ensure 	the 	best 	possible outcome 	for 	eonaumers 	f~om regulatory
X'efo:rm.
18 	The coats 	of 	waiting tinle 	1:.0 passengers 	and 	of 	lost
opportunity to 	potential 	drivers 	are 	not 	easily quantified, 	but
we 	believe 	that 	they, 	too, 	areslgniflcant.
19 	UHTA, 	u. S. 	Department of 	Transportation, 	Reg.ulatQQ'
Impedim@nta 	to 	PrivAte 	S8~tQr UrbAn 	TrAnsit 85 	(1984).
7
80'd 	Z602:099D 17t'Z9ZcL LT9 	t~OJ.S08 JJ..::J

11m1~. on the 	number of 	taxis 	in 	19:9. 20 	One 	author 	estimates
that 	be~v.8n 1979 	and 	1983 	over 	200 	new 	job. 	for 	~axi drivers
we~e cre.ted 	in 	that 	city.21 	While 	data 	to 	measure 	the 	effecta
on waiting 	time 	are 	often not 	available, 	in 	San Diego 	the 	average
wa1tinq time 	in 	the 	radio-dispatched market 	declined 	20 	percent
after open entry, 	and 	the 	ave~age waiting 	times 	at 	major cab
stands 	became 	ne9ligible. 	In 	Seattle, 	vaiting 	times 	likewise
decreased 	significantly, 	and no 	mUnlci~!lity with open entry 	haa
reported an 	increase 	in waiting 	tim.,.
Virtually all 	cities 	that 	have changed 	to 	open 	entry 	have
experienced 	on 	increase 	in 	the 	number of 	firms 	in 	the 	taxi
industry and a 	decrease 	in 	the market 	shares 	of- the 	largest
companies. 	In 	80me citie., 	new 	fleets 	bave 	entered the 	radio-
eliepatched 	segment 	of 	the 	market. 	For example, 	in 	Oakland, 	two
new 	fleets 	entered with 	76 	and 	14 	cabs, 	resPectively, 	and 	in
Sacramento, 	Portland, 	And Charlotte; 	new 	fleets 	entered with 	27,
15, 	and 	14 cabs, 	respectively. 	In Phoenix, 	new 	firms 	accounted
fox 	20 	percent of 	radio-dispatched 	trips. 	In most 	cities, 	the
number of 	indey!ndent 	owner-operators 	also 	increased
significantly.
20 	Recently, 	Seattle 	has 	abanaoned 	ita 	open entry 	policy by
imposing 	a 	mo~atorium on 	the 	iss~ance of 	new 	lieenaes. 	However,
this 	change 	did 	not 	reflect 	a 	dissatisfaction with open entry
but 	rA~her 0 	de.ire 	to 	facilitate 	discussions 	about 	the 	formation
of 	a 	common 	regIonal 	taxicab 	system with 	the 	surrounding 	area 	of
King 	County. 	The Regional 	Taxicab Commission 	has 	informed us
that open en~ry i. 	an 	option 	that 	is 	being considered 	for 	this
common regulatory system.
21 	Zerbe, 	SeAttle TAxi" 	DeregulAtion Hits 	A Eothole,
Regulation 	43, 	44, 	Nov/nec. 	1983.
22 	TAxicab 	RegulAtioD at 	117.
23 	TaxiCAb Regulation at 	115. 	In 	January 	1987, 	Oakland
abandoned open entry 	1n favor 	of 	a 	closed 	system. 	Accordinq 	to
city officials, 	the 	impetus 	for 	this 	change 	came 	from 	the 	taxicab
industry. 	As 	the 	FTC 	staff 	report 	notes 	(p. 	140), 	the 	induatry
was 	opposed to 	open, entry 	from 	its 	inception. 	Oakland responded
to 	the 	industry 	in 	the 	hope 	of 	1mprovingthe 	~pp8arance of 	the
cab.. 	Since 	Oakland's 	taxi market 	is 	largely 	radio-dispatched
and consumers 	can 	therefore 	exercise 	greater 	selectivity, 	it 	is
likely 	that 	competition will 	lead 	to 	the 	level 	of 	appearance 	for
cabs 	desired 	by customers. 	However, 	as 	noted 	in TaxicAb
RegulAtion, 	p. 	69, 	regulators 	have 	ueed 	taxi 	regulations 	to
create 	a 	t~i 	system 	that 	would 	appeal 	to 	businessmen 	and
tourists 	rather 	than 	to 	local 	users 	of 	taxi 	services. 	In 	the
event that 	regulations 	to 	improve quality were 	truly needed, 	they
8
60'd 	[60C0990 vv[9[CG GI9 	rlO1S08 JL:!

The 	Bu~aau 	of 	Economics 	report 	also 	indicates 	that 	quality
did not 	deteriorate 	following 	the 	lifting of 	entry 	restrictions
in other cities. 	Open ent.ry does 	not 	require the 	auspension 	of
s.fety 	regulation.. 	Requirements 	for 	operator knowledge,
vehicle 	safety, 	and 	liability 	insurance may be 	justifiable 	aa
means 	of 	protecting consumers. 	We 	note 	that 	taxicabs 	in 	Boston
are 	already aubject 	to 	such 	requirements.
A major benefit 	of 	open entry 	ia 	the 	ease vith which 	a
competitive market 	can make 	the 	continual 	adjustments 	needed 	to
accommodate changes. 	The 	problem with both Boston's 	current
r.strictions 	and the proposals 	to 	increase 	the-number 	of
medollions 	by some 	•• t 	limit 	is 	the 	difficulty of 	determining
administratively 	how many 	cabs 	are 	needed, 	Even 	if 	the 	number of
taxicab 	licenses 	aVAilable under 	a 	proposed upward 	revision were
to 	81mulate 	a 	coapetitive 	market 	initially, 	an administrative
apparatus 	1s 	unlikely to 	respond 	to 	sUbsequent2ieeds 	tor 	change
a$ 	quickly 	and easily 4s 	can 	free 	competition. 	Under 	these
circumstance., 	ve 	believe 	that 	permitting market 	forces 	to
determine 	the number 	of 	taxicabs 	is 	more 	likely to 	maximize
con.ume~ welfare. 25
~ould 	have 	been 	imposed directly 	rather 	than 	addressed
inappropriately 	through entry 	regulation.
As 	the 	FTC report 	noted, 	regulatory 	refo~ wAS 	quite 	limited
in Portland, 	and 	no 	changes 	have 	been 	implemented 	since 	1980.
phoenix, 	SacraDento 	and 	Charlotte 	atill 	allow open 	entry,
although Charlotte does 	limit 	the 	number of 	tazicabs 	allowed 	to
aervice 	the 	airport.
24 	Ada1niatrators 	could 	Simply choose to 	adjust 	entry
levels 	.uch that 	medallions 	would 	have 	& low or 	zero value. 	This
wou14 	(given appropriate 	fares) 	mimic 	the 	conwuaer welfare
maximizing Illarket outcome. 	Such a 	syetem 	eeeaa 	unnecessary
however,sinee 	free 	entry would yield 	the 	same result 	without 	the
expense of 	~he administrative 	process.
25 	It 	is 	possible 	that 	open entry under the 	pre88n~
regulated 	fare 	structure may 	produce 	an excessive 	number 	of 	cabs
if 	fares 	Are set 	at 	too 	high 	a 	level. 	In 	such a 	situation,
additional 	cabs 	provide, 	at 	best, 	a 	relatively triviel 	reduction
in waiting-tt.B, 	while causing 	increAses 	in the 	average 	cost of
providing 	service, 	as 	the 	number 	of 	rides 	per cab 	declines.
However, 	this 	problem can be 	readily corrected by 	reducing 	the
regulated 	fare. 	The 	fare 	reductions 	would 	induce 	unneeded 	cabs
to 	exit 	the market, 	and 	80 	increase 	the 	productivity 	of 	the
remaining cabs 	as 	they provide 	more 	rides 	on a 	given day. 	See
~~iQAb BAgulation, 	pp. 	45·52, 	156.
9
HCilS08 J1-=1

4. 	.common 	Arg,Jl18nu. 	Ago 1n2t QRfin 	Iota
Proponent. 	of 	r ••~ricted entry 	typically 	argue 	that 	without
~$.tr1ctions the~e vill 	be 	·~oo many" 	tax!s. 	They 	argue 	that 	the
quality of 	caba, 	driver., 	and 	service will 	decrease 	by allowing
open entry, 	The 	available 	eVidence, 	however, 	provides 	little
8Upport 	for 	the••••••rtian••
The 	concept 	of 	open entry does 	not 	prevent 	regulations
requiring 	reasonable 	levels 	of 	safety 	and QUality of 	~axi8 and
reasonable 	.kill 	and knowledge 	of 	driver8. Z6 	Nor 	does 	open
ent:ry lIlean 	thAt 	sen-ice will 	decline, 	OVe~ the years, 	many
cities 	have 	reported that 	service 	has 	improved ,under open 	entry.
In 	Jack.enville, 	Oakland, 	and 	Slim Diego, 	open entry 	led 	to 	an
increo8e 	in 	fleet 	maintenance 	and 	a 	reduction 	in vehlc1e 	age 	as
new 	fleet. 	entered 	the .arket. 	In Milwaukee, 	San 	Diego, 	Santa
Barbara, 	and 	Seattle taxi 	competition reduced 	the 	waiting 	time
for 	Il cab.
W4iting 	time 	is 	an 	important 	factor 	in determining 	the
productivity of 	the 	taxicab 	industry. 	Therefore, 	a 	decline 	in
the 	number 	of 	rid.. 	per 	cab does 	not 	necessarily 	indicate 	a
decl1ne 	in cab 	productivity. 	A ride with 	reduce<i waiti.ng 	time
haa 	higher quality 	and 	is 	more 	valuable 	to 	the 	extent 	thAt 	taxi
consume~. value 	their 	time. 	Thus, 	even 	if 	the 	number of 	rides
per cab decline., 	productivity would 	still 	be enhanced, 	8S 	the
~iQe8 become more valuable 	to 	consumers 	because 	they 	experience 	a
reauc_d waiting period 	for 	the 	service 	to 	arrive. 	Xoreaver, 	as
wa 	have 	noted above, 	if 	an excessive 	number 	of 	cabs 	does 	develop,
this 	supply can 	be reduced 	to the 	benef it 	of 	consumers 	through
fara 	raductions, 	With 	an 	appropriate 	fare 	structure, 	open entry
will 	not 	result 	in an excessive 	number of 	cab••
5. 	COllQlu'1gn
In sum, 	ba••d 	on 	the 	economic 	evidence 	and experience
throughout 	the 	country, 	the 	Department of 	Public 	utilities 	may
wish 	to 	consider 	the 	issuance of more 	taxicab medallions 	in
soeton. 	Additional 	tazicab8, 	consistent 	with maintenance 	of
••le and competent 	service, 	will 	benefit 	Boston 	residents 	and
visit.ora 	by 	improving 	taxi 	8ervlce.
The 	Department of 	Public 	Utilities 	i. 	considering
Aqthorizing 	the 	i.auance 	of 	A 	specific 	number of 	new medallions,
although that 	number has 	not 	yet 	been determined. 	We believe
26 	If 	the 	mintmu. 	levele 	of 	quality 	and 	safety were 	set
exces8ively high, 	they 	could 	act 	as 	da 	facto 	restrictions 	on
entry. 	In considering 	any 	such regulations, 	we 	would 	suggest
thAt 	Boston we1qh 	the 	costs 	and benefits 	of 	auch 	regulation, 	and
i.sUG only those 	regulations 	that 	prOVide 	net 	benefits.
10
~10lS08 :)l.:::!

'. I ~. J	
"'.":'-...J '
t~,· 	";'9ltOvol 	of 	.;: L rGs<;, tion* 	on 	th9 	nu.mbGr 	of 	tAxj:::~be would
d'l 	m03t 	to 	enh4nce 	t!:;~ w~lf4.re of 	Boston I 8 	taxi.;:
(h;,.,1:e:r.. 	In the 	alt.ernative, 	issuance 	of 	a 	iI!911!':' 	'-.,t, 	n~.i::
of,-~:;;1I1 med.allions 	would be 	very 	beneficiAl 	to ~ons0.
. 	We 	appr.ei3te 	the 	oppo~tunity to comm~nt on 	the 	i~~u~~
raisilld 	by Hr. 	Lynch'. 	appGa.l.
PtU,,"j9,b~ 1), 	Mer.&
R.qiQn~l Di~~~tor
11