Cabs, States Haggle Over Dynamics of Fare Game
Cos say free-mkt practice ensures cabs are available at all times, rates much better than state-determined ones
Shelley Singh & Aditi Shrivastava
New Delhi | Bengaluru: A frequent customer of Uber in Bengaluru received an email from the taxi-booking company last week titled ‘ Why pay more for a less reliable ride?’
Based on his usage data, Uber calculated that under the Karnataka government’s newly determined rates for taxis, he would have had to pay an additional .₹ 16,000 for about 120 rides taken since January — that is, about .₹ 38,500 instead of .₹ 22,000.
Several frequent users of the service received similar emails from Uber seeking their support after the Karnataka government introduced measures this month aimed at stopping taxi aggregators from dynamically increase fares.
Now, with New Delhi Chief Minister Arvind Kejriwal indicating he will make permanent his administration’s moratorium on surge pricing, the cab aggregators have raised the pitch.
The companies argue that theirs is a free-market practice based on demand and supply to ensure their cabs are available at all times and that their prices are far more competitive than the government-determined rates for taxis — explanations rejected by the state governments and several others who perceive surge pricing as hugely exploitative.
“During the last odd-even phase in Delhi (January 1 to 15), 92% of the trips were regular fare and only 8% were at surge fare,” a spokesperson for Uber India said. “And the surge fare averaged less than 2 times the normal fare.”
Uber and Ola agreed to suspend surge pricing in Delhi after wide criticism and pressure from the government over fare increa- ses that kicked in along with the second phase of the odd-even scheme that regulates vehicle movement based on registration plate numbers. Kejriwal declared on Twitter that overcharging and blackmailing by taxi aggregators wouldn’t be allowed.
Both companies continued to implement surge pricing in Bengaluru, though, while holding discussions with the state administration. “There is a misperception that dynamic pricing is an exploitative pricing mechanism,” Kartik Hosanagar, a professor of technology and digital business at The Wharton School, University of Pennsylvania, said in a recent interaction, explaining that the fact that supply and demand are not always perfectly balanced justifies companies resorting to dynamic pricing. The Uber spokesperson said the company’s surge pricing mechanism was “completely automated — determined by an algorithm. We can turn it off only in case of emergencies like in Brussels attacks, Boston Bombings”.
Prabhjeet Singh, chief strategy officer at Uber India, in an interaction early this month, said, “In many cities we are cheaper than autos…. On the press of a button, you get a car in five minutes. Dynamic pricing driven by algorithm ensures that. Airlines, hotels also do that.”
Ola, India’s largest taxi aggregator, said in a blog post that customers always have the option to reject increased fares. “If the peak pricing of the hour is high, then you click on ‘Try Later’,” it said.
Times Internet, a subsidiary of the Times Group, which publishes The Economic Times, owns a minority stake in Uber.
Agreeing with the cab companies and other experts, Arun Sundararajan, professor at the Stern School of Business in New York, said, “The nature of taxis is such that there will always be periodic supply and demand imbalances over the day. For a market-based platform like Uber, price changes are the way in which a supply of drivers is brought into the market when needed.”
Cries in support of the Delhi and Karna- taka governments’ decisions are equally assertive, with several of those opposing surge pricing arguing that all companies should follow rules uniformly. Rival taxi operator Meru has openly sided with Kejriwal’s fight against dynamic pricing, saying the right way for Ola and Uber to solve the problem would be to invest in adding more taxis to their platforms and serving customers on a first-come-first-serve basis. “When the poor guys (auto rickshaw and individual taxi drivers) charge a premium for a ride, people blame the government for not taking any action,” said Siddhartha Pahwa, chief executive of Meru. “(With Uber and Ola), there is no way of checking or validating the dynamic pricing algorithm written by these companies.” Uber and Ola do not share the formula they use for their fare multipliers. “When there is going to be a monopoly, then the same taxi aggregators can charge 10 times the price,” Pahwa said. “Then who will take care of the general public’s interest.”