Welfare Versus Economics? (Surge Pricing)

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 Any material borrowed from published and unpublished sources has been appropriately referenced.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.

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

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PART I – Welfare

As the second phase of the controversial odd-even policy comes into effect in the national capital, the sole alternative apart from public transport – the private taxis – are being labeled as opportunists. The taxi aggregator services provided by Uber and Ola are being criticized for their surge pricing models which come into operation during peak demand periods.

It is not for the first time that taxi aggregator services are being criticized. In later part of 2014, Uber was caught in a maelstrom when it surged price in response to high demand during Sydney hostage crisis1. Even before that, in 2012, Uber raised cab fares during Hurricane Sandy2 in New York. In both these situations, the human side of business was claimed to be missing. Profit making was seen as the sole reason for doing this.

This time, seeing the public outrage3 over social media, the Kejriwal government has threatened to directly impound taxis and cancel permits4. This has been done to save the common man from exploitation of such dynamic pricing apps.

The real question is whether a blanket ban on surge pricing actually protects consumers’ interests. This is what we’ll explore in the next write-up.

References:

  1. Huffington Post article (Dec 15, 2014)

http://www.huffingtonpost.com/entry/uber-sydney-surge-pricing_n_6325026.html?section=india

  1. Fortune’s article (Nov 2, 2012)

Uber NYC and the Sandy Surge

  1. Indian Express article (Apr 20, 2016) describes how many passengers took to social media, tagging Arvind Kejriwal with images of their bills

http://indianexpress.com/article/cities/delhi/arvind-kejriwal-uber-surge-pricing-delhi-odd-even-ola-app-based-taxis/

  1. Financial Times article (Apr 21, 2016)

http://www.ft.com/intl/cms/s/0/742d189a-0785-11e6-96e5-f85cb08b0730.html#axzz46ZDYv48y

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