The urge to surge
From Uber to AirBnB and Netflix, it’s about innovation
Though the debate over taxi aggregators like Uber and Ola, and the response to it in states like Delhi and Karnataka, has primarily been over whether surge pricing should be allowed, that is completely missing the point. And we are not even getting into the issue of whether, once you average out surge and non-surge pricing, the aggregators actually deliver better value for money than the existing system—if they didn’t, it is difficult to see why they would be doing so well. Uber and Ola’s USP is taking an under-utilised asset—in this case, transport services—and helping use it more efficiently by offering superior matching services. So, an office-goer with spare time on his/her hands, a homemaker or a student who is not using his/her car/two-wheeler all the time suddenly get added to a nation’s public transport service pool—while one study on how Uber’s surge pricing doesn’t add to supply is widely quoted as proof of the perfidy of aggregators, elementary economics tells us that added supply results in falling prices.
Such innovation on aggregation, of course, is not restricted to taxi services, and AirBnB has done the same for hotel space by allowing people to give out unutilised rooms in their houses for hire—in this case, AirBnB’s job of matching requires it to guarantee a certain quality of service to those renting the rooms. In each case, there are vested interests being hurt, and it is not just the existing set of taxi services or hotels we are talking about. In both cases, by bringing in new players into the business, the gover nment’s ability to licence/regulate is also being made redundant—which is why, for instance, the Delhi gover nment is now telling the Delhi High Court that Uber/Ola are running their trade illegally.
All innovation, by its very nature, upsets the status quo. The question is whether the government/regulatory system will adapt to it in such a way that societal benefits are maximised—if it doesn’t, the innovation is either driven underground or society is denied that benefit. Internet banking, mobile banking, payment banks, wallets and now UPI—imagine how people’s lives would be, and how much more costly the transactions would be if RBI were to disallow these innovations and insist that branch banking, with the number regulated by the central bank, be the only form of banking. Social media has revolutionised the way news is disseminated today and, to a large extent, taken away the power from big media—is it to be banned? In telecom, over-the-top (OTT) players like WhatsApp and Skype have changed the voice business forever. The answer is not to choke them off—as many incorrectly believe big Indian telcos are trying to do—since customers are getting a service at a fraction of the earlier cost. What a smart regulator would do in the face of this revolution is to ensure a level playing field that allows the sector to prosper—since OTT players don’t pay huge amounts to buy spectrum or the high license/spectrum fees that telcos do, the solution lies in lowering the regulatory burden for telcos as well. Reducing the debate over innovation, whether in the case of Uber or AirBnB or Netflix or WhatsApp and so many more, to one of costs or of legality is missing the wood for the trees.