Markets in Everything: $1 Million Taxi Medallions

New York Times -- "Two New York taxi medallions — aluminum plates that grant the right to operate a yellow cab — changed hands this week for $1 million apiece, the highest recorded sale since the city’s modern livery system began (see chart). The sale was the culmination of decades of astonishing growth for the humble medallion, which is nailed to the hood of every yellow cab in the city. When New York issued its first batch of medallions in 1937, the going price was $10 even, or $157.50 in today’s dollars.

Some perspective: The Dow Jones industrial average has risen 1,100 percent in the last 30 years. In the same period, the value of a taxi medallion is up 1,900 percent. That return beats gold, oil and the American house.

Corporate medallions, like the two sold on Wednesday, do not need to be driven by their owners and can be leased out 24 hours a day. Individual medallions, which make up about 40 percent of the fleet and must be occasionally driven by the owner, are worth slightly less: the latest sale was for about $700,000 (see chart).

There are 13,237 medallions in the city; new ones, when issued, are sold at auction. But the medallion pool is rarely expanded, creating a scarcity that helps keep values high. (Many owners have objected to a city proposal that would allow livery cabs to pick up street hails outside busy parts of Manhattan, saying such a plan would lower the value of their medallions.)"

MP: Membership in the "NYC taxi cartel" certainly has its privileges: above-market returns (17.4% per year for corporate medallions and 14.75% for individual medallions, vs. 0.83% per year for the S&P 500 since 2004), see previous CD post here, here and here.

HT: Colin Grabow