In 1937, the Haas Act created the medallion system in New York City, requiring all taxicabs to display a medallion issued by the city government and to charge rates set by the New York City Taxi and Limousine Commission. The act ushered in an era of prosperity for cabbies as they benefited from the cartel-like environment, free from competition and downward price pressures. The Haas Act also created a market for the limited supply of medallions. Originally auctioned by the city for $10, they sold on the secondary market in 2010 for close to $1 million. And then, along came Uber.
Ubernomics applies the tools of economic reasoning to the rise and fall of New York City’s ‘taxi kings,” managers who owned hundreds of the 13,600 medallions serving a city of 8.5 million people. The focus of this lesson is on Economic Reasoning Principles #3, Incentives, and #4, Institutions. Students learn how, from 1937 – 2011, cabbies enjoyed the benefits of market power conferred and protected by city government. They examine the data on medallion sales before and after May, 2011, when Uber entered New York City as a “ride-sharing” service, exempt from the “rules of the game” regulating taxis. In the 4 short years since, the market for medallions has crashed. Foreclosures by banks supply some medallions, but there aren’t any buyers. Taxis sit empty outside headquarters, abandoned by drivers walking away from leases to drive their own cars for Uber and Lyft. And just like that, the profit incentive motivated an innovation that changed the rules and toppled the taxi kings.
Ubernomics (Teacher Guide)
The FTE thanks Susanna Pierce, AP Macroeconomics and AP Government teacher at All Saints High School in Tyler, Texas, for the idea, design, and original draft of this Hot Topic. The lesson was edited, with permission, and any errors are the responsibility of FTE staff, not the author. (Questions or comments? Please contact firstname.lastname@example.org.)