Recently Delhi government banned surge pricing of cab services in the city. People thought that it is a great move as now they don’t need to pay more for a cab ride in peak hours of the day as they used to do. But if I say that surge pricing is good and banning it can lead to a loss of potential benefits then you might disagree with me.
How can something in which we need to pay more than what its actual cost is good for us?
What is surge pricing?
Surge pricing is an increase in price of a utility or service in times of excessive demand. The surge pricing is based on the economics most basic concept of demand and supply. You already know that prices of air tickets rises just before few hours of the flight takeoff and you need to spend more than anyone sitting on that plane and travelling to the same destination.
Why people think surge pricing is bad?
Do we like to pay more than what the MRP of a product is when we go out shopping? Ofcourse we don’t like it. This is the reason why people don’t like surge pricing. People think they are being robbed in the cover of the situation they are in. And of course charging someone more in case of emergencies is not much of a good thing.
How Cabs apply surge pricing?
Surge pricing is based on the demand and supply of cabs in a particular area. If you are watching some concert and suddenly when the show ends and you open the UBER APP to get a ride to your home, you find that the charges have multiply to three or four times of their actual cost. This happen because most of the people attending the concert want to go home and they all wanted a ride home at the same time.
To meet the peak demand the cab services just can’t arrange cabs equal to demand at the same time and to counter this situation they increase prices so that people who can afford other means of transport should back out. This way the people who are rich enough or those who have higher need of cab will get the ride.
With increased pricing the cab drivers also get the initiative to provide service at the more demand area as the increased fare is shared between the company and the drivers.
Uber Cab services uses an algorithm that sets the prices with respect to the demand. Whenever the demand rises in some place, algorithm immediately applies surge pricing and prices increases for the cab ride. The company defended their algorithm based on the assumptions that if they wil not apply surge pricing than people who are in immediate need of the cab may not get one due to high demand.
My stand on the Uber surge pricing is that it is good for some and bad for some. But my stand on the ban of surge pricing is that it is wrong. Companies are doing business and not social work and if you cannot afford the surge price than don’t take a cab. Surge price ban may lead the company to move out from DELHI which may eventually be a loss for the Delhi citizens. And if we are banning surge pricing of cabs then why not such a thing is applied on Airlines and premium Indian Railway Trains. Airlines and Indian Railways too apply surge pricing. What’s your stand on this? Do comment below.