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The Industrial Organization of Food Carts

As Harold Demsetz notes, “the problem of defining ownership is precisely that of creating properly scaled legal barriers to entry.”   Taxi medallions, meet food cart permits.  From the WSJ:

The city’s competitive street food culture has created a thriving black market for mobile food vending permits issued by the Department of Health and Mental Hygiene. The city charges a mere $200 for most food-cart permits, which must be paid every two years when they are renewed. But it only issues 3,100 year-round permits plus an additional 1,000 seasonal permits?not enough to satisfy demand. Transferring or renting these permits to another vendor is illegal but everyone, including the city’s Health Department, acknowledges, that it happens.

…

Meanwhile, demand for permits and their black-market prices continue to climb as street food’s popularity soars with blogs like Midtown Lunch chronicling vendors’ moves and some gourmet food trucks developing cult-like followings. Some permits fetch as much as $20,000 for two years, vendors say. In the case of Ms. Sultana, the Bronx food vendor, she says the permit holder told her someone else was willing to pay $15,000 for the permit she previously paid $7,000 for two years ago.

Mohammed Rahman, who has operated the popular Kwik Meal cart in midtown for 11 years, says he pays $15,000 every two years for his permit. “The city charges only $200, why should I have to pay $15,000? All the profits go to someone else.”

Obtaining a food cart or truck permit in one’s own name can take a decade or more, according to vendors. There are 2,080 people currently on the citywide waiting list for a two-year permit. The list is compiled of license holders and it’s not uncommon for families to get licenses for every member of their family?even if they don’t work at a cart?to increase their chances of obtaining a permit.

In a related story, the food carts in New York City now have a trade association (website here).

Even more closely related is the battle over green cart permits in NYC, and the competitive response from supermarkets:

The city started the green cart program almost three years ago to bring more fruits and vegetables to “underserved” neighborhoods with high rates of diet-related illnesses. Today, the city has issued about 450 permits to operate green carts in large swaths of the Bronx and upper Manhattan, as well as parts of Brooklyn, Queens and Staten Island. While most normal food carts can operate anywhere and tend to congregate in high-traffic neighborhoods like midtown Manhattan, green carts can sell only in designated zones.

…

Some lawmakers like Peter Koo, a City Council member who represents Flushing, thinks green carts shouldn’t be allowed within a certain distance from supermarkets.

The green carts have their fans in the community. George Wright recently walked up to the two carts a block from Ms. Kim’s store. “It’s cheaper than other stores,” he said, “and the fruit is very good.”

Ms. Kim says the monthly revenue in her store has dropped to $5,000 a month from $10,000 a month because of the carts, the tough economy and nearby construction. That’s before she shells out $3,500 for rent, buys the produce and pays an employee. The result is that she’s losing money each month.

She figures it’s going to get worse. Most of her customers pay with electronic food stamps and recently some green carts got portable devices so they can accept them as well.

“I have to go bankrupt,” she says.

Here is Yglesias on DC food cart deregulation.

Filed under: business, economics, food, markets, regulation

Full post as published by Truth on the Market on March 28, 2011 (boomark / email).