Bryan Caplan  

Price Floors on Trial

Applied Ignorance... WSJ Reviews SRtHMK
The Institute for Justice is suing to overturn Nashville's sedan and limo price floors:

Can government force transportation businesses to charge a minimum price to protect politically connected companies from competition?

That is the question the Institute for Justice (IJ) and its clients seek to answer in federal court with a challenge to Nashville's new limousine and sedan regulations.

...[I]n June 2010, the Metropolitan County Council passed a series of anti-competitive regulations requested by the Tennessee Livery Association--a trade group formed by expensive limousine companies.  These regulations force sedan and independent limo companies to increase their fares to $45 minimum.

The regulations also prohibit limo and sedan companies from using leased vehicles, require them to dispatch only from their place of business, require them to wait a minimum of 15 minutes before picking up a customer and forbid them from parking or waiting for customers at hotels or bars.  And, in January 2012, companies will have to take all vehicles off the road if they are more than seven years old for a sedan or SUV or more than ten years old for a limousine.

Anyone want to make odds on the outcome of the trial?

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CATEGORIES: Regulation
Twitter: Bryan Caplan @bryan_caplan

COMMENTS (8 to date)
ThomasL writes:

No... *sigh*

David R. Henderson writes:

First question before I do a bet: who's the judge?

RobertB writes:

Plaintiffs lose with at least 95% probability. The idea of price-regulated passenger transport is not exactly uncommon, and, as far as I can tell, they have no legal theory that would prompt the judge to overturn these regulations.

Tom Dougherty writes:

The Tennessee Livery Association, who according to Bryan's article is behind this injustice of the cartelization of the limo industry, has a hysterical link on their website about legislation to crack down on "pirate limos" at the San Francisco Airport. Apparently, consumers need to be protected from "rogue" limo drivers.

Doc Merlin writes:

"Plaintiffs lose with at least 95% probability. The idea of price-regulated passenger transport is not exactly uncommon, and, as far as I can tell, they have no legal theory that would prompt the judge to overturn these regulations."

There are actually quite a few similar cases that have been won by the free market side. IJ is actually really good at picking cases and plaintiffs. There are a couple such legal theories:
1) Regulatory takings
2) Lack of rational basis

Æternitatis writes:

One positive fact that the IJ surely is aware of and may have influenced them to bring a test case there, but most commenters might not be:

Nashville is in Tennessee. Tennessee is in the territory of the United States Court of Appeals for the Sixth Circuit. That court, in an opinion in a case brought by IJ and written by of one of my judicial heroes and until recently the Sixth's chief, a few years ago overturned as without rational basis a similar Nashville regulation on who can sell coffins.

In other words, this is the right place, and with the right panel, IJ could win.

Silas Barta writes:

Is it just me, or does this seem like a modern-day ban on wearing purple?

Supposedly, in the Middle Ages, nobles wore purple to signal wealth since purple clothes were really expensive, and they didn't like merchants being able to do the same when they got rich (or when purple dyes became less expensive). So they banned any non-noble from wearing purple.

Replace "purple clothes" with "riding limos" and all the dynamics carry over: limo service has become cheaper, so it doesn't signal wealth anymore, so people using it that way want the cheaper limos banned.

Patrick R. Sullivan writes:

Unfortunately there is legal precedent on the side of the cartel. Cliff Slater wrote a piece for Transportation Quarterly many years ago debunking the 'Great Conspiracy to Destroy the Streetcars' (no longer available online, sorry) that John Kerry's former Yale debate team partner, Bradford Snell was peddling to a Senate subcommittee on antitrust back in 1974.

In that article, he told the story of how the jitney buses which had arisen early in the 20th century and were cutting into the electric utilities' streetcar ridership in New Jersey were legislated out of existence by almost exactly the same tactics being proposed in Tennessee.

Also, Seattle tried to deregulate the taxis about 20 years ago, and that failed too.

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