In Defence of Surge Pricing of Cab Rides
By implementing the policy of ordering off the roads cars with odd-numbered licence plates on even dates and evennumbered licence plates on odd dates, the Delhi government, in the name of combating vehicular pollution, offends economic sense. To compound the offence, it has now forced cab-hailing companies from calibrating supply to spiking demand with ‘surge pricing’, a policy of raising fares in times of increased demand.
Congestion pricing has been part of the sensible solution for managing traffic in Delhi that has been given the go-by in favour of the odd and oddly named odd-even policy. Sure, it takes some technological capability to count the traffic on busy zones, compute a price for using the road at that time that would discourage people from driving their private vehicles at that time and disseminate the price to all those who want to know via a phone app. But India has that capability. What is missing is the political will needed to deploy it. Surge pricing for taxi fares would force people to share rides or make better use of carpools and make better use of the available transport infrastructure, reducing fuel consumption and pollution. The only drawback, it would appear, is that it uses prices and the market to allocate rides and riders. Our politicians love to hate market forces and pretend that they know better. In the absence of surge pricing, fewer people would share rides and more people would wait for single-occupancy cabs and waste time and fuel. What the government could have done is to tell the cab-hailing companies to show data that justifies particular levels of surge pricing. If an ex-post audit shows price gouging, that is, charging fares in excess of what was required to clear the market, the operators could face steep fines.