‘Removing regulatory speed bumps for app-based cab services can make India leader in mobility space’

March 30, 2020 12:08 PM

Rather than regulating the prices, the government may look at overall deregulation of the sector promoting competition, transparency, efficiency and innovation.

Pricing of cab services has been a critical area of concern for policymakers among others. (file photo)
  • Amol Kulkarni & Anurag Mishra

As per a year-end ridership analysis, while users travelled billions of kilometres in 2019 using the app-based ride-hailing platforms, a lot of riders in Mumbai, Surat, and Ahmedabad preferred them for their early morning trips. The trend suggests the potential role, app-based cab services can play in enabling a reliable mobility network in the country. However, despite, carrying passengers for billions of kilometres on road, the ride of these platforms has remained far from smooth, facing frequent regulatory speed bumps, at times in form of blanket bans in the process.

Dynamic Pricing

Pricing of these services has been a critical area of concern for policymakers among others. App-based taxi aggregator platforms follow a dynamic pricing mechanism to manage the demand and supply within the marketplace, which has remained an issue of concern within riders and traditional taxi drivers. Media reports suggest that the central government has been pondering over putting a cap on dynamic pricing and fixing the revenue share between drivers and aggregators. However, before imposing any cap on dynamic pricing and other pricing regulations, direct and indirect impacts of such measures on a wide range of stakeholders such as drivers, riders, taxi aggregators and overall transport system need to be carefully studied.

Bengaluru could be taken as a case for example. Karnataka government imposed a cap on dynamic pricing between Rs 12 and Rs 24 per km for cabs costing between Rs 5 Lakhs to Rs 10 Lakhs. Recent media reports suggest that it has resulted in the reduction of earning for drivers. Due to frequent demand-supply mismatch, there has been a rise in the estimated time of arrivals (ETAs). The rise in ETAs leads to frequent trip cancellations and in turn, fewer trips in comparison to actual trip requests are completed. The drivers now spend more time picking up a passenger due to higher wait time rather than investing it in completing a trip, whereas riders feel dissatisfied with service quality due to lower availability of rides. The situation may lead to a reduction in overall efficiency and lower utilization of assets in the long run. Though these findings call for further examination, the trend may have long term impact on app-based taxi aggregator platforms and in turn, their impact on ensuring a reliable mobility network in India.

A major impact of dynamic pricing has been its reliability to provide remarkable consistency of wait time for riders. A case study, based on collaboration between Chicago Booth School of business and Uber, provides some interesting findings from a natural setup in the US. On New Year’s Evening, dynamic pricing got suspended in New York due to a technical glitch. A lot of riders made requests for rides, in absence of proper price signals to tradeoff between alternative transport modes and actual availability of drivers. Whereas drivers were less attracted to the platform and less motivated to drive down from a faraway location in the absence of incentives. In turn, the wait time significantly increased and completion rate drastically fell down reducing the overall economic efficiency.

An often ignored advantage of dynamic pricing is its role in ensuring ‘flexible work’ for drivers.  A driver will have the flexibility to drive at a time and in a location, where demand is expected to be higher or in other words, dynamic pricing will be at play. Women drivers are likely to seek higher flexibility to achieve work-life balance therefore dynamic pricing may turn out to be favourable for them. A study by UCLA suggests that dynamic pricing could result into a remarkable increase in efficiency of many emerging “gig” markets where jobs are widely distributed across workers and prevailing market conditions fluctuate across both time and location.

Dynamic pricing is not unique to app-based ride-hailing platforms and has been practised in other sectors such as hospitality, airline, railways for premium trains and e-commerce websites, with higher consumer acceptability. While real-time pricing for public goods like electricity has been introduced in countries like the US and UK, several states in India have also introduced time of the day tariff to efficiently optimize demand and existing supply. Comparatively, app-based real-time pricing is a recent phenomenon in the transport industry. Therefore, it is possible that the concern of riders is more related to transparency, communication, volatility and timing of its imposition. Therefore, the consumer perspective regarding dynamic pricing needs to be studied comprehensively.

Deregulation

Notwithstanding, traditional taxi drivers have been concerned about the absence of level playing field when compared with app-based platforms. App-based taxis continue to ply on roads relatively unregulated whereas incumbent traditional taxi services are still liable for age-old regulations related to pricing. The situation, therefore, provides an opportunity for regulators to visit the archaic rules applied on traditional taxis in light of digitalization and technology development, abolishing those whose original justification is not valid anymore.

Conclusively, rather than regulating the prices, the government may look at overall deregulation of the sector promoting competition, transparency, efficiency and innovation that will enable efficient choice and eventually drive down prices in the long term. The present concern should be more about developing a reliable transport system with ample consumer choice and bringing transparency within the fare pricing mechanism. While technology could be an enabler for the same, the policymakers may inform themselves of best regulatory solution through structured public consultations and using tools such as regulatory impact assessment (RIA). RIA helps in identifying and assessing direct and indirect costs and benefits of regulations on different stakeholders.

While a mobility transformation is already taking place with the onset of shared, connected and automated mobility solutions, app-based taxi aggregators can potentially change the face of transportation in upcoming decades for greater consumer good. Optimal regulation will be important to realize the potential of technology and enhance mobility’s contribution to development. Though India has necessary ingredients to develop a reliable and inclusive mobility network and become a leader in mobility space, the final recipe needs to be completed with enabling regulatory ecosystem.

Amol Kulkarni is Director (Research) and Anurag Mishra is Associate Fellow at CUTS International.

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