See You Later, Aggregator
The surge pricing ban shows our regulators must modernise and app companies be transparent
In a recent Instavaani poll published by Mint, over two-thirds of the people polled in metros supported the ban on surge pricing. Further, the poll suggests that people support far more regulation of taxi fares. Delhi chief minister Arvind Kejriwal is a person who knows his numbers and his base well. And the poll results seem to confirm that this is a popular decision.
We believe that the real story is a lot more nuanced with important takeaways for government, regulators and the taxi app companies.
The economic rationale for surge pricing is straightforward. When demand for taxis outstrips supply, raising prices will bring more drivers on the road, or to the areas with surge pricing, and equilibrium is restored but at a higher price. As supply of taxis eventually overtakes demand, prices come down. This is no different, at some level, than pricing in many other markets — airline seats and the stock market, for example.
The ban has stirred up quite a debate. The government and the politicians are saying that taxi apps are committing “daylight robbery” by arbitrarily raising prices and benefiting at the common person’s expense. The taxi apps say that by finely managing incentives, they are providing taxis at the right place at the right time.
We wouldn’t be wrong if we said that consumers have a love-hate rela- tionship with dynamic pricing. Nobody likes to pay more. But sometimes you are just glad that you have the option and can really get that taxi should you absolutely need one and don’t mind paying more.
Regulation and innovation are fundamentally opposite ideas. Regulation is about stability, whereas innovation is about risk. Regulators worry about consumer protection. But innovators are fuelled by designing products that will delight the same consumers and increase supply. It is exactly these opposing forces at work that have led to the current situation.
If we look at the regulatory landscape in India, uniformly, sector-specific central regulators have a much better track record than state governments as regulators. The Reserve Bank of India, the Securities and Exchange Board of India and the Telecom Regulatory Authority of India are all sector-specific central regulators. They work in a professional manner and have often asserted their independence from government.
Thus, witness Trai defending net neutrality in spite of a high-decibel campaign and lobbying by big business; RBI calibrating innovation in payments from prepaid instruments to payment banks and now the Unified Payment Interface (UPI); and Sebi boldly moving towards digital infrastructure to purchase mutual funds with one touch on a smartphone.
However, much remains to be done in the case of state-level subjects such as urban transport, A huge part of the challenge comes from the fact that these departments are not independent, are staffed by administrators rather than domain experts and directly answer to the politicians.
The net neutrality debate went through a series of public consultatio- ns, with written arguments and counterarguments. No such consultations seem to have happened for surge pricing. No views were put forward either by the government, or by the industry or by citizens.
The sharing economy is a fast-growing chunk of our economy, which itself is growing rapidly. In order to create an environment that fosters innovation and growth, we will need high-quality regulatory institutions that are staffed by those who understand technology, economics, ecosystems, are impartial and work with the highest levels of integrity.
The taxi app companies are equally to blame. Surge pricing is quite unpopular with users. Many blog posts have been written by drivers as well expressing their dissatisfaction with the algorithms. This is a major communication problem, where these companies have been unable to explain the economic rationale to the users and to the regulators.
Some transparency in the surge pricing algorithms, and perhaps a cap on surge, would go a long way to convincing everyone that they’re not gouging. Surely, there are alternatives to surge pricing. If the idea is to bring more drivers on the road, there could be customer auctions to bid higher, or drivers coming from far to an area with higher demand could be given additional compensation.
It is difficult to believe the claims that surge pricing puts more taxis on the road without real data. This is believable in a true sharing economy, where anyone with a taxi app can use his personal car and become a driver. As prices surge, more drivers will be incentivised to be on the roads.
Algorithmic, Not Calculating
However, in India, only licensed yellow-plated vehicles can be used as taxis, and these are driven by professional drivers. At best, surge pricing can bring taxis from neighbouring locations when demand shoots up.
We need our regulators to catch up with the times, understand the changing landscape, and focus on consumer protection and market stability. The competing demands of consumers, taxi app firms, and auto and taxi unions have to be accommodated.
The taxi app companies need to try out newer models and be more transparent about their algorithms and claims. Let us use this opportunity to encourage new ideas in urban transportation.
Nilekani is former CEO, Infosys, and Shah is co-inventor of the programming language, ‘Julia’
You’re talkin’ to Kejriwal?