Review of Industrial Organization 23: 255–266, 2003.
© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
An Economic Analysis of Regulated Taxicab
Department of Economics, Skidmore College, 815 N Broadway, Saratoga Springs, NY 12866, U.S.A.
Abstract. The literature on taxicab markets has provided theoretical insights regarding the peculiar-
ities of taxicab markets. A key ﬁnding is the positive effect that excess capacity, in the form of vacant
taxicabs, has on the demand for taxicab service. Lack of data on taxicab markets has made estimating
these models difﬁcult. This paper models a taxicab market in which entry and fares are regulated. It
estimates the model using data from meter inspections of New York City taxicabs. It ﬁnds a positive,
inelastic relationship between vacant taxicabs and demand for taxicab service. The estimates of the
parameters of the model are used to evaluate the effects of policy changes such as increases in the
regulated fare and in the number of taxicab medallions.
Key words: Elasticity, medallion, New York City, regulation, taxi, taxicab.
JEL Classiﬁcations: L5, L9, R4.
In most metropolitan areas, the taxicab market is subject to regulation of both
the number of suppliers and the price charged. Interesting theoretical research on
taxicab markets indicates the importance of excess capacity on consumer demand
for taxicab service: excess capacity is not necessarily wasteful but may be socially
desirable, as empty taxicabs increase the value of the service through lower waiting
The theoretical implications are ambiguous: issuing new taxicab licenses
could increase excess capacity and hence demand for taxicab service. But, depend-
ing on elasticities, the increase in demand might or might not be enough to increase
revenue per taxicab. Little empirical work has been done to test these theoretical
This paper seeks to provide empirical insights into taxicab markets using a data-
set built by Schaller (1999). The paper models a regulated taxicab market and uses
See for example Abe and Brush (1976), Arnott (1996), Cairns and Liston-Heyes (1996), De
Vany (1975), Douglas (1972), and Frankena and Paultner (1986).
Beesley (1979) presents an empirical study of the taxicab market in London. Schroeter (1983)
estimates a model of taxicab service with radio dispatch and airport cabstands using data from a
Minneapolis taxicab ﬁrm.