SURGE PRICING: WHOSE SIDE IS IT ANYWAY??

Delhi has restricted Surge pricing partially, Bangalore has banned it and now it is time for Mumbai to take up this issue. Surge pricing essentially means that the commuters need to pay extra amount to avail the service during odd hours or high demand periods. It is not a new concept, the government allows static surge pricing for public transport vehicles such as 25% extra fare during night hours (between 11 PM to 5 AM). The option is allowed in the digital meter installed by the government.

The aggregators are using mobile app as fare meters and define their own fare (based on time and distance). Based on demand and supply the aggregators are using a Dynamic Surge Pricing model that allows change in fare multiple times during the day from their central server to the mobile app.

Cab Aggregators claim, Surge Pricing is a tool to match demand and supply for taxi rides during the days. Technology allows these changes in dynamic environment based on complex algorithm. Surge price is used to reduce the demand by offering high prices, thereby increasing cab availability for the commuters who are ready to pay the surge price.

There is another side of Surge pricing. All cab aggregators are charging lower prices when compared to the fare chart notified by Transport Department creating new customers and high demand. To maintain the supply to match high demand and they pay huge incentives to drivers to attract more drivers and keep them on the roads. Cab aggregators incur losses in the process. For Cab aggregators surge pricing acts as a tool for sustaining their businesses by cross-subsidizing the usual fare. 

The comparison of taxi fare is given below:

Note: The rates are for Sedan category vehicles

Through surge pricing cab aggregators are narrowing down the gap between their fares and regulated fares. The alternate sustenance model to surge is to charge a higher fare and increase the average fare. (The average fare of Traditional Radio Taxi is INR 550, compared to INR 250 for Cab Aggregators).

In Singapore, the government has no restriction on fare for hail taxi and private hire (equivalent to Tourist Taxis). Cab aggregators can use surge pricing for private hire by informing passengers in advance. However, the commuters have alternatives such as good public transportation and hail taxis. It is important to see if we can allow deregulation of fare in the absence of good alternative.

As Bangalore is compelling to install digital fare meters in the taxis which will not allow dynamic surge pricing and Delhi government is also relooking its existing fare for all categories and may create upper ceiling, we need to see how the customers are impacted. 

Author - Rupa Nandy, Transport Enthusiast (@rupanandy)