No more surge? Cap on cab fares to check peak pricing likely

| Wednesday, May 18, 2016 - 20:55
First Published |
No more surge? Cap on cab fares to check peak pricing likely

Cap on cab fares to check peak pricing likely

New Delhi: In the wake of the recent uproar on surge pricing by major cab aggregators in Delhi, the Union Road Transport and Highways Ministry is likely to prescribe a cap on fares in its new policy to check surge pricing by cab aggregators like Uber and Ola. The policy is likely to make digital meters mandatory for all taxis.
The Delhi government has been looking to put a curb on surge pricing since long now, especially after the state of Karnataka initiated measures to check the same.
On 20th April, media was abuzz with the news of Delhi Chief Minister Arvind Kejriwals' ire over peak pricing imposed by the cab aggregators like Ola and Uber. It was also reported that Kejriwal had warned of strong action against such operators. 
The cab aggregators had introduced surge-pricing provision during the second phase of odd-even scheme, which was objected to by commuters and Kejriwal had asserted that such demand-linked hikes would be banned permanently.
What did the government do? 
Following this huge uproar, Delhi government announced a premium app-based bus service. “The fares of premium buses shall not be regulated or subsidised by the government and may, therefore, be market-determined. However, if and when the need arises, the government may prescribe upper limit of fare and/or take steps to check predatory pricing,” said the policy statement released by the government. 
What seems contradictory?
Now, there seems a clear contradiction in the two news pieces being discussed here. The first question that emerges is, if the government's wrath is over surge pricing then why is the policy skewed towards bus drivers and allows surge pricing freedom to them.
If we ponder deep into the matter, it will become evident time and again, that even governments have historically been making use of surge pricing, to their advantages, in areas that fall under their realm. 
Let's talk about Railways and Airline industry for instance. Railways have been implementing surge pricing via two techniques — Tatkal reservation and Premium/Special trains. 
Since, Railways have always had a monopoly in the sector with no one in competition, it has been charging peak prices. As and when, the demand for tickets surpasses the supply, extra charges are levied on the customers and the same is the case with Airlines — the difference in pricing when tickets are booked in advance versus when they are booked at the last minute. 
Even today there are many private airline companies that charge lower prices than the government’s airline. Premium trains were started during the reign of the UPA government and their tickets prices were decided in the aforesaid manner since the beginning of time. In case of online purchase of such tickets the prices may, even now, rise up to 3-4 times. 
What is surge/peak pricing?
The pricing mechanism kicks in when demand outstrips supply. Companies say the increased fare acts as an incentive for taxi drivers to stay on the roads and helps in balancing the demand with supply. The price surge is driven by algorithms and the rates get revised depending on the demand-supply gap.
Why prohibit surge pricing?
Now, coming back to the prohibition on surge pricing. The government has been wielding it since ages now, as discussed earlier in the article. 
In many European countries, peak pricing is technically market-driven and effectively follows the principle of demand and supply and other market-related forces. Surge pricing comes into force, in an attempt to equilibrate demand and supply. Here, the dilemma within the government system is the present infrastructure of transport, which falls under the govt's realm in itself is not robust. 
Despite this, if surge pricing is permitted in Delhi or any other metro there can primarily be two kinds of outcomes. Either customers will resort to cabs only when no other option is available, and eventually companies will reduce the prices when demand outstrips supply, or if the government decides the prices then these options would be out of reach.
After the ban on surge pricing, the unavailability of Uber and Ola taxis too has been widely reported in the media. Rentals essentially depend on the basic economic principle of demand and supply. If demand is less than the supply, the prices won't rise. Or even if the prices increase, the number of taxis on the road are bound to dip as no company can ply empty vehicles on the road on the condition of vacant taxis. 
Hence, the government must ponder how not to make it a matter of prohibition but rather a matter of effective management. A policy that ensures efficiency in transport management ought to be implemented rather than a mere ban, which might lead to further complications.

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