Surge Pricing has been a matter of some concern and much controversy in our part of the world, actually in a lot of places really. And given the time of the year, especially if you are in Calcutta, it’s safe to (mis)quote Ned Stark. Surge price is coming!
So, what exactly is surge pricing? Well, it simple really. It’s the oldest trick in the economics book. Price elasticity of demand. More demand, more the cost of the ride and hence a ‘surge’ in prices.
“Surge pricing” occurs when a company raises the price of its offering if there is an increase in demand. The strategy is simple – if available supply of drivers became dangerously low, the company would raise pricing.
But does surge pricing help? Well, in a way it does. Most such cab companies work on the principle of flexible timings for the drivers, which means, a driver gets to choose when he or she want to work. As such, the incentive of a surge is bound to attract them to an area where there is demand. And an area with demand means that there are passengers there looking for transport. So it helps both drivers and passengers – “this strategy, would help to increase supply, as it would encourage more drivers to work. Without surge pricing supply would eventually run out and people wouldn’t be able to hire a driver.”
But the passengers are being forced to pay a higher rate. Only those who value the ride most. Other passengers can wait till the surge dies down, besides, the initial surge attracts drivers to the area, which consequently works to get the surge down – as supply equals demand or surpasses it. So, because of the surge, passengers now have transport option in the area and drivers an incentive.
Obviously it depends from city to city and context defines and influences a lot of the consumer feedback – surge pricing during an emergency like a terrorist attack or are considered exploitative and have received much flak. On the other hand, surge pricing system has ensured transport availability at the middle of the night in places like Delhi and Kolkata.
And in many ways, most of us have always been paying a ‘surge’ of sorts – bees rupaye zyada de dena. At least, now there’s an alternative and alternative which will take you where you want to go within the described limits and will pick you up from where you are.