The Usual Suspects - A Chain of Events
- Odd-even returns in Delhi from 15th April
- Delhi Govt. bans
Surgedynamic-pricing used by cab aggregators, calling it a loot (daylight robbery)
- The usual social media outpour: first blatant criticism followed by overt defense leading up to historically and geopolitically calculated and analytical criticism and the counter-narratives.
It is a chaos and needs to be systemically analyzed.
What is surge pricing? Why do it?
The app-based services match demand (“riders”) with supply (“taxis”). Both are variables and depend on external factors like location of pick-up and drop-off, time of day, as well as traffic conditions.
Basically, it is a market clearing function(adjustment of supplies to meet the demand) being performed by price adjustments through complex algorithms that companies like Ola and Uber have designed- the “invisible hand of the market” to rule them all.
It’s this dynamic pricing- to be correct, that allows even the service providers to have a fair chance at cost recovery. In layman terminology, it’s the same as auto fare shooting up when it rains like cats and dogs or when he knows there would be no return customers. All these supply-side constraints are substantial to policy making.
So is it all sacrosanct?!
Well, in an ideal market economy- yes the invisible hand of the market would be sacrosanct without any interference allowing supplies to meet demand. But it’s not an ideal world, is it?
One major drawback of the aggregator model is that the drivers are a separate entity and work on a trickle down theory. And we all know how that turned out- the Illustrious failure of 1st and 2nd Five Year Plans. Most of the times, these surged prices are not trickled down to a driver who took the real pain of fulfilling the demand. Although evidence suggests that drivers working with such aggregators earn much higher than otherwise, as always done, the majoritarian data is universalized to say all and this needs to be regulated by the state to protect the interests of drivers.
Also, the surges tend to be outrageous(personal experience of 5 km being charged for 650 INR). This one is easy because the solution is with the airline sector- cap the surge! let the invisible hand be called out if it crosses its limits.
Anything India specific??!!
YES!! This is where it all gets too interesting. It’s India after all!
Prima facie it appears to be a populist move- compulsive urge to satisfy people at the cost of economy, which is not always bad, rather it’s inevitable sometimes when you have promised and threatened the babus to stay in line since you will be in power for the next 10-15 years.
But when you realize that auto and taxi trade unions had been meeting with government officials at the backdrop of this specific issue of cab aggregators eating up their business, it all becomes too suspicious to ignore.
This is the kind of politics that starts to appease trade unions (the larger vote bank) by ruling free market economy with an iron fist, thereby allaying the booming startup industry, putting the economy at risk, which can all fail stupendously. And I hope the government realizes this in time before scaring off the market operators.
Let me know if you can add a dimension to the debate. Any opinion would be appreciated!