Chicago Cab Companies Lock Out Competition

Where the free market flourishes, prosperity follows, but where tyranny in the market place exists, there is only chaos.

Taxi Cartels in Chicago
Source: Steve Chapman, "Put the Taxi Cartel in the Rearview Mirror," Reason Magazine, February 20, 2014.
March 3, 2014

If you're thinking about becoming a cab driver in Chicago, consider it costs $360,000 just for a city medallion, says Steve Chapman for Reason Magazine. But before a would-be taxi driver can even purchase the medallion, he has to find a current cab driver who wants to sell his, as the city has capped the number of cab drivers at a certain amount (the same cap has been in place since 1997). If the city reclaims a medallion, it will hold an auction for it.

• In Chicago, cab companies generally purchase the medallions and rent them out to drivers.
• In 1991, they cost only $28,000, increasing to $79,000 in 2006 and up to today's staggering price of $360,000.

By limiting the number of taxi licenses, the city has been able to guarantee income for drivers. But new transportation models such as Uber have emerged, which allow customers to hop on their smartphones, request a car, and pay with a credit card or PayPal. The prices can sometimes be lower than the cost of a traditional cab, but the cost goes up at peak hours. Customers know of the price increases and can decide whether they want to use the service or not.

Chicago agreed to allow these ride-sharing companies to operate with less stringent regulations, though still require criminal and traffic offense checks on drivers, liability insurance and vehicle inspections. But the cab companies have sued, insisting that they're only looking out for poor and minority passengers. But Uber insists that 40 percent of its trips in Chicago begin or end in underserved areas, though it has not provided documentation.

The cabs have said that allowing competition "threatens seriously to devalue more than 6,800 medallions currently in use in Chicago." To that, Chapman responds, "Yes, it does. Breaking up a cartel is bad for the cartel participants. Having pushed for and profited from a system that artificially limits the supply of cabs, the medallion owners now argue that it must be preserved for their benefit."