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

The Economic Times - - Front Page -

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.”

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