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The taxi cartel

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Early this morning Peter Cheney of the Globe and Mail published an article called: How Uber is ending the dirty dealings behind Toronto’s cab business.

And I highly recommend you read it. He’s been investigating this industry for decades.

Though the article is specific to Toronto, I know that there are middle people and archaic policies governing the taxi industries in many other cities around the world.

Here it revolves around taxi licenses issued by the city (known as “plates”), which are expensive and almost impossible to get. Last year the average price of a plate was $118,235 (2014).

The way it works is that people – typically non-drivers – buy/inherit/get these plates and then charge rent on them to drivers who want to use them. The result is a taxi cartel:

In fact, Toronto’s taxi plate system is anything but free enterprise. Instead, it is based on the artificial restriction of a natural market, and the granting of licences to a fixed number of participants. Even those who paid top dollar for a plate used to enjoy an annual return of more than 12 per cent. And for those who inherited plates, the return was manna from heaven.

So it shouldn’t come as a surprise that the taxi industry is grouchy about companies like Uber. But the cost structure of the incumbents is going to need to change if they want to stay in business.

Jeff Bezos of Amazon is famous for saying, “Your margin is my opportunity.” And that’s exactly what is happening here. A bloated legacy cost structure is being quickly supplanted by better/cheaper.

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