Monday, July 13, 2015

Of cabs and agencies.

If you've taken a basic course in macro-economics you've learned a bit about inelastic demand. That's when you have a product that is so essential that you can raise the price or reduce service, or both, without having a negative effect on demand.

Cigarette and liquor companies can do so, for instance. Because you're not about to give up your tobacco and booze. Cable companies, telcos, the subway. They're all pretty inelastic.

For my entire lifetime, until now, New York City taxicabs have fallen into the inelastic camp. Right now for instance, every fare--depending on when you take your ride--is hit with a $1.80 to $2.30 surcharge for some statefied reason. A $7 fare quickly becomes a $10 fare but you shell out because you're in a rush, or you're a mile from the nearest fetid subway line.

Of late, New York has seen the rocket-like ascent of a new ride-share company called Via. They charge just $5 anywhere in the city--river to river from 110th Street to 14th Street from 6:30AM to 9PM.

It's a pretty sweet deal. I've taken Via to and from work virtually every day since I heard about it six weeks ago.

The cabs in the city are in a panic. Their top lights are on. They honk at you if you're standing on the corner. They are desperate for fares.

They used to think and act as if they were inelastic.

All at once they're realize they're elastic.

Their price rose so high, their service got so bad that when competition came in, the elastic finally snapped.

Medallions--the right to own a city cab--has for almost a century been limited to 11,000 in number. That artificial shortage drove the price of the medallion up to over $1 million. That guy you've tipped $2 may have been a millionaire. With the advent of Via and Uber the price of a medallion now hovers below $700K.

This little essay on cabs and macro-economics has an advertising point of course. I can't help but think that traditional ad agencies were acting very much like yellow cab drivers. Haughty, arrogant and expensive when all at once, new media and new agencies came in, the pixelled-equivalent of Via.

Eventually, the yellows--if they are to survive at all--will improve their offering. And eventually, the Via's--as they continue to prosper--will get arrogant and more expensive. Before long, the industry will stop acting like demand is inelastic and will put an emphasis on accountable work that works.

Maybe that's a pipe dream.

Like finding a cab in the rain.

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