The Uber/Ola question: Should the government intervene in private cab service operations?

Should a government intervene in the operations of private cab services?

Consider this -  a commuter pays a Tatkal fare while booking a train ticket at the last minute. Guests pay extra money for last minute hotel bookings. In the same manner, commuters pay extra when there are lesser cabs on the road. In a time of scarcity, you shell out more to avail services. 

In a Twitter conversation, Uber mentioned that the government is interfering with market dynamics. This leads to fewer cars and a negligible impact on requests.

@prasanto Interfering with market dynamics leads to fewer cars and neglegible impact on requests - leading to prolonged surged periods

— Uber Delhi (@Uber_Delhi) April 18, 2016

There’s life between zero and 5x surge, you know. What about capping surge at 2x during Odd-Even? @Uber_Delhi https://t.co/4qJGhN3JBc

— Prasanto K Roy (@prasanto) April 18, 2016

In a conversation with Catch, Uber India mentioned that flexible pricing is their modus operandi. Demand dictates market mechanism, and regulation of demand and supply is simple market dynamics. Surge pricing is fundamental and needs to be in place to let taxis ply efficiently.

"Airlines and hotels are more expensive during busy times. Uber is, as well. We don't just charge to make a buck - we take a small fee of the transaction, and a majority of the fare goes to the driver so we can maximise the number of drivers on the road. The point is, in order to provide citizens with a reliable ride, prices need to go up temporarily," said Uber. 

Uber just shared this message with its customers:

Ola made a statement as well. "To make Govt's Odd Even initiative a success, Ola has temporarily pulled out Peak Pricing in Delhi NCR. We have also rolled out an on-ground campaign where volunteers are spreading the message of ride-sharing and car-pooling in support of the scheme," a company statement said. 

Is surge pricing illegal?

Demand and supply is a market rule. And Taxi aggregators follow the same norm. When there's a higher demand for taxi services than those plying on road, the surge pricing model comes into effect. A surge pricing algorithm is applied to equalise supply and demand. A research paper published on peak pricing explains:

"The algorithm assigns a simple multiplier that multiplies the standard fare in order to derive the surged fare. The surge multiplier is presented to a rider in the app, and the rider must acknowledge the higher price before a request is sent to nearby drivers."

Drivers are free to work whenever they want and they must be incentivised for their services. It must be noted that as soon as more drivers are available, the surged price goes down and standard rates are applicable.

However, the current situation is that commuters, though happy with the standard rates, are finding it tough to actually get an app-based cab to take them to their destination. Between the Delhi government and cab aggregators, it is the hapless commuter who is left stranded.