And really just not getting economic rent either

Paul Hunt says:
October 20 2017 at 4:48 pm
In round numbers there are 13,000 yellow cabs in New York City and at their peak medallions changed hands for an eye-watering Dr Evil price of 1 million dollars. So just the combined value of those medallions was around 13billion USD until recently, and that’s just for one city, admittedly a big one.
It’s a big market, ride-sharing apps do seem to expand it – and the cut that the market thinks Lyft is likely to get could mean they are undervalued. There’s also the potential for the technology ( if it works ) to be incorporated into e-bikes and punting. Exciting times ahead imv.

Richard Murphy says:
October 20 2017 at 5:57 pm
No one can make enough money out of a taxi to pay a million for a licence

So I a right, they’re not worth a million

What someone pays and what something’s worth are not always the same thing

You really should do some economics

And please remember – because I know your source – Tim Worstall gets his economics wrong, most of the time

But people were making money out of that price. Exactly because there was a restriction upon the number of licences the owners of the medallion were able to charge $40,000 a year for each of the 2 x 12 hour shifts available each day.

Richard Murphy says:
October 21 2017 at 8:48 am
But that’s not the return, is it? That’s because much of that sum is the price of labour – the taxi driver has to do long and anti-social hours to achieve this (if indeed they can). So this, plus the cost of their can (the return to capital) has to be deducted before the return to rent (the price for the medallion) is estimated. And that then looks paltry. Which is why the price has collapsed.

No, the price has collapsed because competition from Uber and Lyft has lifted that medallion restriction thus destroying the ability to collect that economic rent.

Cassandra Trojan says:
October 20 2017 at 5:28 pm
“no taxi rank has ever been worth $10 billion.”

“In 2013, some {NYC taxi] medallions sold for more than $1.3 million. …There are currently 13,587 yellow-taxi medallions in the Big Apple ” NY Times 5 Apr 2017

13,587 * $1.3 million = ?

Richard Murphy says:
October 20 2017 at 5:54 pm
But that’s rent, as I said

Yes, it’s an economic rent, One being destroyed by that competition. Which is where economists usually say Hurrah! In fact, even Spudda has been saying that we want to get rid of economic rents where we can.

Richard Murphy says:
October 21 2017 at 8:44 am
That’s what happens whene there is a new, disruptive element that for a one not (and it will only be a moment) creates something that looks like a market: the rental return of super normal profits disappears

But in this case the new entrant clearly wants to re-establish the barriers – that’s they only at the price can be justified

So that aim, as I said, is not to run taxis but to extract a rent from the taxi rank

No, collapsing the rent in one city by $13 billion and then making just normal profits on activity in 300 cities to gain a valuation of $10 billion. Note that the rent being destroyed is an annual value, the worth of Lyft is a capital value, reflecting all future income. In normal economics this is regarded as a very good thing indeed actually. And if Ritchie ever thought through his own opinions on rents then he would agree too.

19 thoughts on “And really just not getting economic rent either”

  1. Although Murphy won’t believe it investment banks will have thought through their valuations. There is no certainty, but they will have some basis in fact.

  2. Question for Tom: if all 13000 licences were up for grabs at any one time, the price wouldn’t be as much as 1m, would it? I mean, the 1m is surely a function both of limited supply and of limited liquidity …

  3. If the medallion owner recieves $6.27 an hour rental, he has 9% return on what would have been thought as a risk free return. That actually suggests to me it was under valued (remeber it would have been thought risk free at the time) .

    I onIy wish I was a ritchie-murphy and knew everythong and was as flexible enough to get my head up my arse. Then I could give myself a blow job.

    If people were paying a million dollars they must have been making at close to that valuation, and thought they would at a million.

    Which isn’t even silly 1 million dollars, 365.25 days a year is 8766 hours, an very good 9% trading return is the medillion owner scoping $10.27 an hour. If it appreaciates at 3% that lowers to $6.34.

    Thats less than the petrol bin.

  4. Hard as it is to believe, the man is getting stupider.

    He’s incapable of getting right the sort of simple economics I learnt at my father’s knee – or rather, over the lunch table.

  5. And please remember – because I know your source – Tim Worstall gets his economics wrong, most of the time

    Confirmation, if confirmation were needed, that the addle-pated old tuber was following the taxi thread here!

  6. “if all 13000 licences were up for grabs at any one time, the price wouldn’t be as much as 1m, would it? I mean, the 1m is surely a function both of limited supply and of limited liquidity …”

    Not necessarily. There are plenty of people out there with $13bn in cash. Warren Buffet for one. People could have leveraged their cash with borrowings too.

    I bet plenty would have jumped at the chance to own a monopoly (as was) asset like the entire NYC taxi medallion system. OK there’s usually a discount for bulk, but then again there’s a premium to own 100% of something and have a monopoly.

  7. As I mentioned in the other post, HK taxis are a cartel and the govt restricts supply.

    The excellent David Webb lets rip here:

    HK is an economic case study in the good (Friedman) as well as the bad (govt supported cartels):

    “In HK, if you want to drive a taxi for a living, then you have to pay someone else not to, by buying or renting their licence. Every taxi licence in HK is in one sense a colonial licence, as the HKSAR Government has never issued a new tax licence. HK has 18,138 registered taxis, comprising 15,250 red urban taxis, 2,838 green New Territories taxis, and the lesser-spotted 50 blue Lantau taxis. That compares with over 28,000 in Singapore, a smaller place with a smaller population where there are no quantity limits and prices are set by competition.
    The last new HK licences were 10 for Blue Taxis on Lantau Island tendered in early 1997, just before the Handover, and prior to that, 300 red and 100 green licences in 1994. Meanwhile there has been a 20.9% increase in HK’s population from 6.035m in mid-1994 to 7.299m in mid-2015 and a 26.4% increase in the length of public roads from 1,661km at the end of 1994 to 2,099km at the end of 2014. Newer roads tend to have more lanes than the old urban roads, so the unpublished increase in lane-kilometres must be significantly higher.
    The number of licensed private cars has increased 77.2% from 279,420 at the end of 1994 to 495,038 at the end of 2014. As more marginal owners come into the system, the average private car is driven less – an average of 30.4km per day in 2014, compared with 37.1km per day in 1994, down 18.0%. By comparison, the average taxi did about 360km per day in 2014. Motor vehicle ownership in HK remains low with only about 96 per 1,000 people, of which 68 are private cars. This compares with 809 motor vehicles in the USA, 519 in the UK and 149 in Singapore, per 1,000 people.
    In an unrestricted market, the value of a taxi would be no more than its depreciated cost, including any registration taxes. A new Toyota Crown LPG Taxi costs HK$230k at list price. But in HK’s restricted market, taxis change hands at vast premiums, with a red taxi trading around HK$6.7m and a green taxi around HK$5.5m. This values the entire fleet at about HK$118bn. Even allowing about HK$2bn for the vehicle values (half-used), that leaves a premium of HK$116bn (US$15.0bn), or about HK$16k per HK resident. Assuming that this is a fair market price, it represents the net present value of all the future excess payments or “economic rents” that customers in HK are expected to make for taxi journeys, above what they would pay in an open market. That’s how much the cartel is worth.”

  8. That actually suggests to me it was under valued (remeber it would have been thought risk free at the time)

    The valuation depended on future political decisions to maintain the restriction of licenses, and for this to happen for decades. That is a substantial risk.

  9. Noel- I don’t know if Webb mentions this but the HK system was deliberately set up because the govt didn’t like the idea of oiks (ie working class owner-drivers) to earn a decent living. So they separated license ownership to create an asset for HK rentiers (their chums), who now form a powerful bloc against reform and innovation.

  10. :@EL”if all 13000 licences were up for grabs at any one time, the price wouldn’t be as much as 1m, would it?”

    If all 13,000 licence holders decided on Monday morning that they wanted to sell, then probably not. But that isn’t the case and as far as we know most want to carry on operating. On the other hand if the aforementioned Mr Buffet wanted to make a general offer for all the medallions in NY, he might well have to pay a significant premium over $1 million per medallion.

  11. Bloke in North Dorset

    “Whatever the current value of NY medallions & HK taxis, expect those values to soar as soon as driverless taxis are allowed.”

    How so? Isn’t Uber also gambling on being able to swap out to driver-less cars?

  12. Bloke in Costa Rica

    If the blighted potato is reading this: you are an evil fascist tosspot. You should pull your arsehole over your head and sell yourself as a jug handle.

  13. if all 13000 licences were up for grabs at any one time, the price wouldn’t be as much as 1m, would it?

    No, but you could say the same about the UK housing market. Or any market for assets.

  14. what can you expect from a man who thinks the rise in house prices is nothing to do with demand exceeding supply, but that houses are tax havens. He continues to flail around looking for someone/anyone in power to anoint him as their economic guru – he had a taste of power with corbyn and now he wants more. These half thought out “ideas” are just desperation on his part hoping to snare some gullible idiot into proclaiming him as their inspiration. It’s all pretty sad really, but as he’s such a nasty cunt, it provides amusement to see him so desperate.

  15. Uber is earning US$6bn/yr. It’s spending $9bn. It’s losing $3bn/yr.

    Uber is a ponzi scheme for transferring VC money to founders. At the expense of the drivers.

    Another pseudo-startup resting on the creation and lock-in of the new under-class.

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