Wednesday, April 20, 2016

Surge Pricing : Should Government Interfere

During second phase of Odd - Even road rationing scheme, Delhi government has banned surge pricing by cab companies, namely Ola and Uber. Surge pricing is changing price based on demand of taxi cab in a given neighbourhood. Companies believe, surge pricing incentivises cab drivers to take their cab out and go to neighborhood that is not service, of course for a fee. So at the time of high demand price goes up. May be upto 5 - 8 times the normal fare. Cab aggregators like Ola and Uber claim, nearly 80% of extra charge goes to driver. Aggregators keep 20%. City of Bangalore has tried to put a restriction on surge pricing. State of California in the US, is also bringing a bill to restrict surge pricing by cab aggregators. Delhi government is also thinking of coming out with a policy so that surge pricing will remain banned even after Odd - Even scheme is over. As a consumer, I am happy. 

But as per law can government control how a business house operates? If a government steps in to stop profit making, does it not bring licence permit raj and goes against the tenets of free market? Should a consumer not have a choice to choose between cab companies that is charging less vis a vis that is charging more? Some consumer may prefer to pay more in lieu of better and safer service. At the end of the day, should market forces not decide what a service provider can charge? 

In a country like India, there may be many people who would support government intervention in bringing cab fare down in public interest. More so in this searing heat of April, 2016 when you cannot take your car out and public transport is inefficient at best. Delhi government is also saying that it is working in public interest. By same analogy, when central government intervenes and dissolves Arunachal and Uttarakhand governments, because there was allegation of corruption and horse trading, Uttarakhand High Court said government cannot by pass constitutionally elected government. People have chosen their representative. People will unseat them. If corruption in one place cannot be rectified by government, can the same rule apply in another place? Should rule of law not be supreme in all cases?
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