A more fundamental impediment to creating a two-equation system is that
the conditions in New York City do not reflect normal supply and demand
conditions. The City government’s cap on the overall number of taxicabs
prevents taxi companies from adding cars to their fleets to meet rising demand.
Thus, the feedback implicit in a two-equation model, in which supply expands
to satisfy rising demand, is absent.
In addition, individual taxi operators often reduce the amount of service
they offer when demand quickens. These drivers engage in income targeting,
so that when they can meet their income goal more quickly, they work shorter
days. Thus, within this segment of the industry, an increase in demand can
produce a contraction in supply.
These non-market conditions make it likely that revenue per mile and
supply are not related. As shown below, this is in fact the case. Thus, there is
no utility to specifying a simultaneous two-equation system.