Surge price Ban in Delhi – Is it justified?

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Sumeet Kumar Sharma, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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Following the steps of Karnataka state Government, Delhi Government has also banned surge pricing by the App-based taxi aggregators like Ola and Uber.  In Delhi’s case, the surge pricing ban has flowed from the imposition of the odd-even licence plate rule, which has increased the demand for taxis. The odd-even scheme may be a welcome intervention to reduce traffic congestion in the Union Territory, but the decision to clamp down on surge pricing by aggregators such as Uber and Ola, which is set to continue even after Phase Two of the odd-even scheme ends on April 30, is counterproductive. As expected, after the ban, the number of taxis plying on Delhi’s roads has dropped. Arbitrary interventions in the demand-supply market are pointless in the absence of alternative solutions. 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. 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.

Uber and Ola fares average at around Rs 13 to 15 a km, but could be as low under discounted fare as Rs 7 a km or as high as Rs 35 a km under surge price. The argument to force cab aggregators to stop using ‘’surge pricing’’, which kicks into action once demand soars, is faulty. Surge pricing typically means that if the usual fare is x, it could rise to 1.5x, 2x, 3x, 4x and so on. The rider has the option to take it or leave it. Surge price is a killer for a traveller in a hurry, who will take the service at a higher price if there’s no alternative. But the point is traveller gets to go, without waiting. If there’s time to wait, one will of course happily wait for the surge price to come down and travel at normal fare a little later.

So, it’s a matter of how desperately a customer wants to hail a cab at a given time. This is nothing different from buying a flight ticket or booking a hotel room in peak holiday season.Critics of surge pricing must understand it’s just a way of doing business, even if it may mean “over-charging” at certain times in certain locations, and that it is not being forced on anybody. Once surge pricing mechanism is switched off, as has happened now in Delhi after orders from the Aam Aadmi government, drivers of these app-based cabs go blind on traffic demand and are therefore showing ‘’no cab available’’ for the longest duration.

The NDA government at the Centre has promised ease of doing business to startups. Banning of surge price may prove to be a test case for India and the PM on the future of startups in the country.

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