An Uber Solution in New York Cab Warfare

By Charles Brooks

 

When we hear the words “New York City,” three things come to mind: bright lights, tall buildings, and yellow taxis. However, one aspect of this classic image of the big apple is being challenged by newer, more innovative opponents. As every college student who has had too much fun on a late night out would know, finding a cab that isn’t full or isn’t being driven by someone that won’t visibly cringe at the mere mention of Brooklyn is quite an ordeal. App-based car services, such as Lyft and Uber, have the potential to turn the New York yellow cab market upside down.

The barriers to entry for Uber drivers are easily overcome. They require that you are over 23 years old with no recent driving offenses on your license. The background check for a potential Uber driver can take as little as two days. This relatively low wait time to become a driver has made Uber a very attractive occupation for people looking to work in the car service industry.  By overcoming medallion licensing and maintaining minimal barriers to entry, Uber is converting taxi drivers to Uber drivers. NYC Cabs have already lost over 10% of their 50,000 or so drivers to Uber in the last year alone. As demand for Uber drivers rises, the cab warfare will continue to negatively impact the value of the long coveted medallions substantially.

Uber allows its users to request a driver within their area based on its distance and the cumulative driver rating. The two alternatives to Uber are the classic yellow cabs and the black car services. Yellow taxis are regulated by medallions, which give drivers licensing rights to drive a cab. These medallions sell for over $700,000 and are usually owned by investment companies and leased to cab drivers. Yellow cabs are allowed to pick up any customer from off the street and travel anywhere within the five boroughs. Black cabs are also regulated by the medallion system, but have different restrictions than their yellow counterparts. Black cabs are only able to provide services to customers who have called for a driver and cannot pick up just any pedestrian attempting to hail a cab. Obtaining licensing rights to drive a yellow or black cab is not easy however and includes many steps that can take up to and beyond a year. Uber cars have managed to form a solid alternative without being restricted to the quickly aging medallion system.

Uber eliminates the need to call a car service or hail a cab from the busy sidewalk. All it takes is a click of a button on your smartphone, and your driver is on his way. Without even mentioning price, Uber increases the customer’s value by saving them both time and energy. No more frustrating phone calls to black cab services may and no more standing in the cold searching for an empty cab on 14th street. Unlike Yellow, Green, and Black cab services, Uber allows its users to track the progress of their driver through GPS, and wait comfortably indoors until your driver arrives. Uber makes their process effortless to use, and provides a comfortable option that classic alternatives have yet to provide.

The marketing a mix of convenience, options, and assurance of what you will be receiving seems to be a good enough reason to make New York’s Yellow Cabs panic, but it’s UberX’s decreased fares that may be the final nail in the coffin for our old yellow friends. On July 7, 2014 UberX introduced a 20% price cut that essentially made them cheaper than New York cabs.  Uber states that the estimated fare from Williamsburg to the East Village would be 15 dollars. This would make UberX 4 dollars cheaper than their original prices, as well as a dollar cheaper than a yellow cab. A slightly longer ride from Grand Central Station to the Financial District would save an Uber user 2 dollars. One could argue that such small price differentials shouldn’t affect either’s market share, but I would ask these people to consider a drive from Midtown to Astoria Queens. Cab rides that take this long could save customers 10 dollars or more.

The highly regulated yellow cabs just can’t compete with these prices causing  the value of taxi medallions to drop by over a $100,000. Competition brought about by app-based car services has caused a downward shift of the perceived value of an investment in medallions. This has damaged Medallion Financial’s stock, which has dropped by more than 30% since last November. Various company executives as well as their chairman, Alvin Murstein, have already sold many of their shares, indicating a massive red flag.

In order to accommodate for their lower fares, Uber has applied the strategy of surge pricing, multiplying prices at times where demand is high. In all fairness, this is done with full transparency so as not to give customers an unpleasant surprise. This is not so much so a problem as it is a necessity of the business. The only true fear is that as fare wars rage on and more competitors enter the market, the quality of service will lower along with it. However, Uber has almost decimated the traditional cab market in San Francisco. A study conducted by Kate Toran showed that the average number of monthly city taxi trips dropped by almost 65% in 2012 alone; the year Uber began truly booming in San Francisco. What will stop this from becoming the fate of New York City cabs?

This does not leave black and yellow services without options. While some resort to protests or legal action, others may decide to implement their own app-based service. This is the age of technology and innovation. People expect fast information, and service at the tips of their fingers. With such low barriers preventing people from becoming Uber drivers, low prices, and a trendy and accessible method of service; it is clear that New York car services must do something. Uber, which has been around since 2009, is a refreshing challenge to a New York Taxi market that has become over-regulated and outdated. The classic New York cabs are at a pivotal point in which they could evolve into something better, or, just as Bloomberg is no longer mayor, this new type of car service may mean goodbye to another long-running NYC staple of the past.


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Charles Brooks is a Business-Economics major here at Pace University. This is his first year being a member of both the Economic Society and the On the Margin Newsletter. He is excited to finally become a productive member of the society and hopes to contribute as many articles as possible before his graduation in December 2015.

Charles Brooks is a Business-Economics major here at Pace University. This is his first year being a member of both the Economic Society and the On the Margin Newsletter. He is excited to finally become a productive member of the society and hopes to contribute as many articles as possible before his graduation in December 2015.


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