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Thursday, October 13, 2016

Federal Judge: No, Taxis Don’t Have a Right to a Monopoly

If the old were deemed to have a right to preclude competition from the new, obsolescence would equal entitlement.

On Friday, the U.S. Court of Appeals for the Seventh Circuit handed down a pair of rulings rejecting the argument that taxi companies somehow have a protected property right in their monopolies. The opinions—both penned by Judge Richard Posner—are perhaps the courts’ strongest rebuke yet of taxi cartels’ desperate attempts to stay relevant in an Uber world, with Posner describing their claims as having “no merit” and “border[ing] on the absurd.” It’s nice to know that—in the Seventh Circuit at least—losing your monopolistic cartel due to technological disruption is not considered to be a constitutional violation.

A Right to Be Free from Competition?

In one case, Illinois Transportation Trade Association v. City of Chicago, incumbent taxi companies sued Chicago for allowing app-based ridesharing companies such as Uber and Lyft to operate, asserting that the city’s decision to allow such companies to enter the market without being subject to the same regulations covering traditional taxis constituted an unconstitutional taking of their property without just compensation (and also somehow violated the Fourteenth Amendment’s Equal Protection Clause).

In the other case, Joe Sanfelippo Cabs, Inc. v. City of Milwaukee, taxi companies sued Milwaukee for eliminating the hard cap on the number of taxi medallions in circulation, opening the market up to any applicant who met the requirements. Like in the Chicago case, the plaintiffs argued that the loosening of regulations to allow new market entrants violated the Takings Clause.

“[W]hen new technologies, or new business methods, appear, a common result is the decline or even disappearance of the old.”

In both cases, the plaintiffs’ arguments more-or-less boiled down to: “We made a deal with the city years ago where we were promised monopoly control over this market. The government’s failure to protect that monopoly constitutes an eminent domain-style taking.” This is, of course, as the court described, an absurd argument. “‘Property’ does not include a right to be free from competition. A license to operate a coffee shop doesn’t authorize the licensee to enjoin a tea shop from opening.” No one is entitled to a government grant of monopoly power.

Innovation vs. Protected Monopolies

We commend the Seventh Circuit for recognizing these complaints for what they really were: attempts by rent-seeking insiders, angry that their outdated business model (built on a foundation of political patronage) is imploding, to force local governments to maintain increasingly indefensible barriers to entry by entrepreneurial outsiders. The court should also be applauded for recognizing that the issues here are of far broader application than the taxi industry. Our economy depends on constant innovation – and that sort of innovation can’t occur when governments allow themselves to be used by existing businesses to shield themselves from competition. As Judge Posner explains:

[W]hen new technologies, or new business methods, appear, a common result is the decline or even disappearance of the old. Were the old deemed to have a constitutional right to preclude the entry of the new into the markets of the old, economic progress might grind to a halt. Instead of taxis we might have horse and buggies; instead of the telephone, the telegraph; instead of computers, slide rules. Obsolescence would equal entitlement.

Friday’s decisions—the first time a federal appellate court has weighed in on the ride-sharing revolution—represent an important victory for free markets over entrenched rent-seekers, but are by no means the final word on the issue. Courts hearing similar cases over the coming months and years should follow the Seventh Circuit’s example – and local governments should continue giving taxi (and other) cartels reasons to be upset.

Republished from The Cato Institute.

  • Ilya Shapiro is a senior fellow in constitutional studies at the Cato Institute and editor-in-chief of the Cato Supreme Court Review.