To regulate or not
The covert attempt by the national capital’s app-based cab services to milk consumers by charging them exorbitant rates during the ongoing odd-even scheme has forced the Delhi government to intervene. On the fourth day of the odd-even scheme run by Delhi government, passengers reportedly faced serious difficulties in booking cabs as the platform showed fares to be five times the normal rate. To the uninitiated, surge pricing refers to an algorithm-based mechanism that determines fares based on supply and demand. But the concept of surge pricing is not a new or dynamic mode of pricing. It exists in different forms in other areas including airlines that have the flexibility to raise fares depending on demand. But these fares are subject to a cap, unlike those charged by Uber and Ola. In response, Delhi Chief Minister Arvind Kejriwal announced on Wednesday that a ban on surge pricing, introduced for the fortnight-long “odd-even” scheme, will be made permanent. In order to rein in app-based taxi services, the Delhi government has decided to introduce a policy under which cab companies will be bound to charge fares prescribed by the Transport Department. After app-based cab operator Uber blamed the Delhi government for taxi shortage, Kejriwal clarified that his government was not opposed to online aggregators but insisted they obey the law. The odd-even scheme, which ends on April 30, restricts cars to alternate days according to whether they carry odd or even-numbered licence plates. But when schools and offices re-opened after a four-day-long weekend, commuters complained about surge pricing - fares for taxis provided by Ola and Uber shooting up to nearly five times the standard rate. In response, Uber has tried to explain that it does not own cars or employ drivers, but aggregates them, and that surge pricing helps ensure more drivers are available when demand peaks.
App-based aggregators like Uber claim that surge pricing is a function of real-time demand-supply, although there is no way to prove or disprove it. Free market proponents have lost their minds over the Delhi government’s decision. But it is imperative to note that the Delhi government has just asked the commercial cars (that Uber calls partners) to comply with the State Transport Authority, Delhi notification of May 2013. The notification has designated per km charge for taxis and autos—the reason other commercial vehicles have a billing meter. Charging more than the designated rate is punishable by law any cab service. The government is just strictly implementing the law during this odd-even period. The notification allows enough elbowroom for Uber to charge about 2X-3X surge due to their low base fares. However, during the odd-even period, one of two things happened. One could speculate that they either got greedy or their coders forgot to add a ceiling to the algorithm. So once the demand peaked, the surge went up to 5X-6X, making it patently illegal. Instead of apologising, what the likes of Ola and Uber did was to play the victim card and blame the government of unfairly curtailing their business.
But it would be unfair if this column did not present the other side of the argument. Suffice to say, this newspaper does not subscribe to the arguments presented below. It is perfectly legitimate to outrage at surge pricing. But like most citizens who can afford to a hire a cab through Ola and Uber, one can wait to use either an alternative or the app when prices have dropped. If the need is urgent, one can use it. One must understand that there are viable alternatives. If the prices are exorbitant, one can choose not to take it. It’s that simple. In other words, there is no need for the Delhi government to intervene. There is no proven discrimination, i.e. no market failure here, and intervention by the government is not warranted if that is not the case. As expected, after the ban, the number of taxis plying on Delhi’s roads has dropped. Moreover, it has been argued such arbitrary interventions in the demand-supply market are pointless in the absence of alternative solutions in public transport. “If Uber and Ola are charging their customers unscrupulous sums, the only long-term solution for the Delhi government is to provide its residents with cheaper and better public transport,” according to an editorial in The Hindu. “The rapid growth and popularity of taxis “managed” by aggregators across India is a testimony to the fact that public transport and transit facilities remain hopelessly inadequate.” Moreover, as this column has argued in the past, the lack of adequate public transport poses the biggest hindrance to the odd-even scheme. People need incentives to shun their cars in favour of buses and metros. It would be of great benefit to Delhi if the AAP government developed a long-term strategy that makes Delhi public transport user-friendly. Suffice to say, this story isn’t over. In the days to come, one will witness numerous debates on social media and other platforms arguing for or against the Delhi government’s decision.