Surge Pricing - An economic offence

And just when the middle class and the millennials are rejoicing on the arrival of  cab aggregators such as Ola and Uber to teach a lesson to fleecing autos, the cab aggregators have suddenly introduced 'surge pricing', thereby, abruptly ending consumer happiness. Is surge pricing a consumer-friendly approach? Is it day-light robbery in the name of supply demand economics? Is it a kill joy in an already anti-consumer market? Let's discuss. 

What is surge-pricing?

When supply overtakes demand, there is an artificial scarcity, which leads to temporary price increase. As a result, consumers either pay a high price to use the service or go in search of cheaper options that let the demand drop and correct the surge in price. 

Every time I tried to book an Ola or Uber in the last six months around peak hours both in morning and late evening, my enthusiasm and faith in using their services got tripped and I was shocked due to their surge pricing. 

Derail Smart City Objective

While Tamil Nadu has been a forerunner and an example for many other states when it comes to Public Distribution system, public transportation, etc. it has been anti-consumer with unregulated auto fares. It is not easy to travel in big cities like Chennai during peak hours due to lack of adequate and well-developed transportation network and lack of last mile connectivity. Especially, autos have gone unchecked for the last 40-years who operate without meters and only work on surge pricing. While many Governments have come and gone and despite the High Court order for fare regulation, enforcement remains a distant dream. Is this how we run smart cities?

Economic principles and government policies are against monopoly and cartels only on paper. As a result, cheaper alternatives like Share autos have mushroom in the city creating chaos, traffic issues and safety issues for citizens.

Protectionism vs. Favouritism 

Is economics more about anti-citizens policy and making the corporates richer by plundering the consumer? When I asked the Ola ans Uber drivers if the surge pricing charges gets passed on to them, their response was peanuts.

Some western countries like Germany and France, who strongly believe in regulating market forces, have banned Uber and similar services to protect the interests of traditional cab drivers at the cost of consumers. On the other India is cautious about foreign direct investment in retail, anti-competition and unwilling to let the market forces adjust the supply vs. demand has turned partially blind towards consumers, allowing day-light robbery in the name of protectionism. 

Governments across the world operate busses, trains, and aircrafts to ensure essential transportation services are affordable to commoners. The cash-starved Indian Railways 15 years ago introduced Tatkal pricing by selling some seats at a premium to make more money. And recently they've also introduced surge-pricing, yet another anti-consumer approach to compete with the unregulated Omni bus industry to stay profitable. Shouldn't efficiency be the focus and the tool to bring about profitability rather than fleecing the middle and lower-income group that travel by trains and busses?

Against Public Interest

Most of times surge-pricing is a trick employed by cab drivers and cab aggregators to create artificial scarcity by keeping cabs off road and charging more to book higher profit. This is termed as 'hoarding' in economics. We saw this economic term play up in the recent past with dal and onion prices going up the roof. Government of India raided warehouses and imported lentils to address scarcity and put an end to surge-pricing and act in the interest of larger public. Sometimes, when cartels and monopolies are operated by politicians or strong lobbies, nothing can be done. 

An Economic offence

How different is surge-pricing from insider trading? In insider trading the people close to the management or part of it have access to additional information that is used to trade shares and make big gains. Similarly, cab operators have access to peak traffic hours and keep cabs off the street to create artificial demand. May be it is high time we categorize surge-pricing as an economic offence and make it punishable?

All said and done, it is the duty of both state and central governments to keep the price of essential commodities checked and services affordable, regulated and be consumer friendly than act in favor of corporates. Though India may import business models from the West that has a higher percentage middle-class and additional income, while majority of India is still living in rural and just at or below the poverty line with no savings.