Among the things that last month’s Odd-Even Again Delhi threw up was that yes, things are different in summer and when school is on; plus we got to hear a lot about Surge Pricing or Dynamic Pricing as it is also called. We all heard that taxis were charging more (up to 4.7 times more; blackmail rates some called it) when Odd-Even was in place. It is a concept that many of us had not even heard about before and suddenly there were TV debates dedicated to the concept of Surge Pricing: ethics, commercial requirements, and the laws of demand and supply.
What is surge pricing?
According to taxi services such as Ola and Uber, surge pricing is put into effect when the demand is higher than the supply of taxis and drivers. It works like this: drivers who would otherwise not be bothered to drive in heavy traffic or routes that may be inconvenient may be more inclined to ply their taxis when their trips are incentivised by higher pricing. So when you’re in acute need, paying more will make it more likely that you will find a cab when otherwise you may not. So surge pricing actually helps increase supply when the demand increases. Consequently it also helps keep base fares low at other times.
The surge pricing is demand driven and is governed by an algorithm that comes into play when the demand is higher than supply in a given area. There are several parallels of surge pricing in various sectors: when demand is lower, airlines typically incentivize sales by selling their tickets cheaper (anyone save a packet on the red-eye flights?) Similarly, hotels charge more in season and offer discounts off season. In retail as well, pricing is higher when demand in higher. Prices can even differ as per the time of day that one shops.
So do you have to pay surge pricing rates?
The reason that surge pricing got so much bad press during Odd-Even was that people felt that they were being taken advantage of and were being made to pay extra for no fault of their own. The government ruling that prohibited people from using their car on a given day required them to use a cab for getting to work, for emergency situations and so on. So the fact that surge pricing was in play during this time when the demand was not a natural demand but a forced demand, led to the perception was that the government was responsible for permitting cabbies to fleece commuters in need.
So is it extortionate and can you refuse to pay? No it is not and you cannot. The cabbies are not causing this price hike but it is an algorithm that’s leading to surge pricing. If you were to apply the simple laws of economics as well, this is a fair way of doing business.
Is it ethical for them to have surge pricing during Odd-Even? That is a different debate altogether. The last time in April, the govt. did put a stop to it. If the demand is natural then surge pricing is fair. If the demand is being forcefully created by the government’s actions, then the government needs to get in and regulate prices.
And after all this there are other options like the metro, auto rickshaws and the old two legs to walk on.
