Creative Destruction: How Uber is Altering the NYC Transportation Industry

Creative destruction, the concept that illustrates how technology improves the lives of many at the expense of a few, has reemerged in New York City.1 Creative destruction materialized in New York City as far back as the early 1900s, when automobiles destroyed the horse and equestrian transportation industry. In recent years, creative destruction occurred when film producers were replaced with digital cameras. Often, creative destruction is met with lawsuits to prevent modern technology from devastating an industry. Hence, the New York City yellow taxicab industry has filed a number of lawsuits in an attempt to curve the “creative destruction” of the New York City transportation industry. Unfortunately, the yellow taxicab industry has not received the support of the New York Courts.

Yellow taxicabs have dominated the New York City (“NYC”) transportation industry since the 1930s.2 The Haas Act of 1937, mandated the New York Taxi and Limousine Commission to issue a limited number of medallions to the highest bidder.3 This Act reduced the viable options for traveling in NYC because only yellow taxicabs with medallions are permitted to accept street hails. A street hail is when a passenger calls out to, whistles at, or hand gestures for a taxicab. In contrast, the Taxi and Limousine Commission issued licenses to black car services. A black car service may only accept passengers on the basis of prearrangement; they are prohibited from picking up street hails.

As hailing taxis became the preferred mode of transporting in NYC, the value of the taxicab medallion grew. In 1938, the value of the medallion was seventy-five dollars. By 2013, the value of the medallion grew to $1.3 million dollars. The value of these medallions allowed owners to live comfortably. Owners rented out their medallion, created small businesses by hiring drivers, or took out mortgages against the medallion value.
Once Uber Technology Inc. (“Uber”) penetrated NYC’s transportation market, the yellow taxicab industry experienced a sharp decline. Uber created a smartphone application that connected passengers with drivers. The Uber app allows a passenger to view the location of available drivers. The passenger can request a driver by tapping a smartphone. The application then transmits the passenger’s request to several drivers. The closest driver picks up the passenger.

In 2013, as the number of Uber’s passengers grew, the value of the taxicab industry declined. The number of trips in a taxicab in NYC decreased by 25,000 per day and the fare box monies decreased by about $200,000 per day, on average. More notably, the NYC taxicab industry experienced a sharp diminution in the value of the medallion. The NYC medallion decreased from a $1.3 million value in 2013 to an estimated value of $600,000 in 2015.
Needless to say, the yellow taxicab industry was not enthusiastic with the declines and they waged a battle against Uber. Specifically, NYC yellow taxicab representatives filed an administrative petition requesting that the Taxi and Limousine Commission compel Uber to abide by the “street hail” regulations. If granted, this request would have prevented Uber drivers from picking up passengers unless they had a medallion. The taxicab industry stated that Uber passengers tap their smartphone and a driver comes. They argued that the time and clicking process is similar to a street hail, and thus, Uber passengers are essentially “e-hailing” for drivers and therefore, performing a modern-day “street hail.”

The Taxi and Limousine Commission denied the administrative petition. They argued that Uber passengers are not “street hailers.” They asserted that Uber is more akin to black cars because the Uber application only allows for a prearranged car service. They conceded that the amount of time it takes Uber passengers to connect to its drivers is similar or sometimes faster than how passengers connect to yellow taxis, but they ultimately held that Uber passengers “pre-arrange” for a ride.

Following the denial of their administrative petition, the representatives for the yellow taxicab industry filed a claim with the New York Supreme Court alleging that the Taxi and Limousine Commission’s decision was arbitrary and capricious.4 Thus, in sum, the Court permitted “creative destruction,” technology’s ability to benefit many at the expense of a few, to impact the NYC transportation industry— much to the chagrin of NYC’s yellow taxicab medallion owners.

  1. Michael Cox and Richard Alm. The Concise Encyclopedia of Economics, http://www.econlib.org/library/Enc/CreativeDestruction.html (lasted visited 10/2016)
  2. Andrew T. Bond. ESSAY: AN APP FOR THAT: LOCAL GOVERNMENTS AND THE RISE OF THE SHARING ECONOMY, 90 Notre Dame L. Rev. Online 77, 81; NOTE AND COMMENT: INNOVATION, TECHNOLOGY, AND TRANSPORTATION: THE NEED TO ADDRESS ON-DEMAND RIDESHARING AND MODERNIZE OUTDATED TAXI REGULATIONS IN THE US, 33 Wis. Int’l L.J. 701, 706.
  3. Id.
  4. Melrose Credit Union Montauk Credit Union v. City of N.Y., 2015 NY Slip Op 31702(U), ¶ 1 (Sup. Ct.)[/note[ The New York Supreme Court disagreed. The Court understood that Uber blurred the distinction between a street hail and a pre-arrangement, but held that the Commission’s decision to allow technology to advance the transportation industry was not arbitrary or capricious. Furthermore, the Court noted that the “value drop in the medallions is an unintended consequence of technology.”[note]Id.

Author: Beonica McClanahan

Beonica (pronounced Bianca) hails from the Windy City--Chicago, Illinois. After observing the ills of gentrification and experiencing the joys of community activism, she became passionate about developing public policy that shapes communities and families. She exercised this passion when she founded and managed a mentorship program for incarcerated teenagers called at Pere Marquette Juvenile Prison. She developed a comprehensive curriculum targeted at improving core academic competencies and recruited students from Southern Illinois University at Edwardsville (SIUE) to mentor the teens. During the program, many of the teens obtained their GED and one teen enrolled in a university upon her release from prison. Beonica is currently a third year law student at Rutgers School of Law. During her first and second years of law school, she interned for an Appellate Judge, the New Jersey Attorney General’s Office, and the New York City Law Department. Prior to law school she attended Graduate School at the University of Illinois where she researched the most efficient and effective ways to execute public policy. She implemented her research, presentation, and policy skills when she worked alongside the Legislative Director for a Labor Union and the Legislative Liaison for a Finance and Real Estate Association. During this time, she assisted in the passage of the Illinois KidCare bill, a bi-partisan bill that guaranteed healthcare to all children. She aspired to have a greater impact at the state level so she pursued and obtained a position in the Legislative Affairs Division of the Office of the Governor. She organized and handled the legislative agenda of forty state agencies. Beonica also became a respected adjunct faculty member at SIUE, Lewis & Clark Community College, and St. Louis Community College where she taught Political Science to our future leaders for three years. She is excited to be a part of the Computer and Technology Journal. She looks forward to researching and writing about how technology can advance government and public policy. Beonica resides in Princeton, New Jersey with her spouse, Eric and their three children.