Earlier this year, news broke that the Karnataka government was considering capping peak prices used by taxis where customers pay X times the normal fare. Now taxis are booked in Bangalore to deal with power surges. In my opinion, it’s a knee-jerk response that likely happened when a lawmaker wasn’t careful when booking a cab and then suffered sticker shock. There’s a Change.org petition to stop the price hikes, and frankly, I rolled my eyes at the idea that people now think an Uber is a right.
The solution to skyrocketing prices, I think, is simply not to take a taxi if the fare is too high. At 2x surge, it is still cheaper to take an Uber than to call a Meru at Rs. 20/km. After all, it’s not like Ola and Uber are hiding the fact that they charge a high fare, and when that increase is at an unacceptable number for you (for the convenience of a taxi that arrives at your location in a matter of minutes), then you just call a local stand or radio taxi service and wait a bit for your cheaper ride.
At the same time, there is no shortage of people who have rushed to defend the right of multi-billion dollar corporations to charge whatever they want, based on an opaque algorithm that is treated by people as sacred words that don’t should never be questioned. There are some serious articles out there claiming peak pricing is what allows Uber and Ola to offer the low fares they charge most of the time.
The surge, we are told, is a reflection of supply and demand – in areas where demand is high and the number of cars is low, the price goes up. This makes it attractive for drivers to go to areas where there are a lot of passengers looking for rides, and the multiplier automatically decreases as supply and demand balance out. It’s a compelling argument, which is often touted – people use it to ask if you’re ready to go back to paying Rs. 20/km, or go back to haggling with auto-rickshaws.
The problem is that we only have the company’s statements to back up this claim. Most drivers, for example, will tell you that they only receive a small portion of the surge boost, with the rest going to the platform. As a result, according to several drivers in numerous interviews over the months, the surge is hardly an incentive to travel from area to area, so how exactly does it help to cope to increased demand?
And in fact, does the price increase really help lower prices at other times? Or is the low price made possible by payments from the huge battle chests that companies like Uber and Ola have, through which they can artificially adjust prices?
The argument against peak price regulation is that a price cap will only create a shortage of supply; but according to the drivers, the surge does not increase the supply. And if you look at the outraged comments on social media, that doesn’t diminish demand either – it just means people used to frictionless experiences on apps don’t notice they’ll pay extra and then get later a shock and feel scratched.
The fact is that the lack of effective price regulation is the reason why the auto rickshaw situation is so badly organized across India. Prices are regulated, but official tariffs are almost universally ignored due to their outdated nature. It’s no surprise that motorists have to negotiate to get the best rates they can afford.
Unfortunately, because there are no real regulations in place, the driver asks whatever he thinks he can get away with; and that’s why so many commuters have stories of frustration to share when it comes to rickshaws. Unregulated surge charging actually falls under the same spectrum of behavior – simply wrapped up in a sophisticated enforcement.
The point is that banning power surges is unreasonable and of little benefit. Regulation – and every other facet of the cabin aggregation business – is, however, becoming increasingly critical.
When you read serious articles from respectable sources that suggest that the solution to the scam is to allow sharing of private automobiles and buses, as this would reduce the demand for taxis and therefore automatically make surge pricing redundant, then you know that the public relations team at Uber does a great job of setting up a field of reality distortion.
At no point does Ola or Uber explicitly explain the surge pricing mechanism. The processes and considerations Ola and Uber use for surge pricing are hidden, lack transparency, and the information the companies give you (about available cars in your area) through their apps is actually lies.
We’ve written many times about the importance of regulating aggregators, instead of just treating them as “tech companies”. I don’t believe there is anything inherently wrong with surge pricing; only that there must be checks and balances in place to ensure that all aspects – from customer security to privacy to pricing – are protected. Uber and Ola are not going to get rich on rising prices; but that doesn’t mean we should blindly trust the algorithm just because they do.