Medallions and liquor licenses are not usually 'priced' (especially for high-dollar ones like you state), they are auctioned. The price goes that high because someone thinks it is worth it. Not that difficult of a concept.
Of course, in many places there is not a single auction, there are different auctions for different classes of bidders (fleet operators vs owner/drivers, etc). Naturally the price of a owner/driver medallion is usually much less than you quote, but that never gets mentioned.
Could they do it another way? Certainly. They could have a lottery for instance. However, having an auction does two things - nets more money, and insures that the purchaser is going to do what they must to protect their very valuable asset. In other words, comply with the taxi regulations and don't run a nusiance bar. These are generally things that are good for the public.