Salim wrote, "What about places where there are no medallions or restrictions on the number of taxicab licenses. Are you saying the lease cap shouldn't exist in those places?"
Yes! That's exactly what I'm saying. In a non-medallion system in which there is no limit to the number of taxicab licenses, if there are more drivers than cabs, a driver won't have to simply bid up the price to lease a cab to the point where he'll make no money. At some point, he'll simply go apply for a license himself and become an owner.
I think the point Carl is making is that if there are more drivers than taxicabs, the drivers will not make any money if the number of cabs is limited, e.g. a medallion system.
So even though you can buy a medallion, that doesn't change the fact that the driver will still be left with nothing.