Hailing an Uber or Ola Cab just got a whole lot dearer due to surge-pricing

If you depend on the plush, air-conditioned interiors of an Uber or Ola cab to help you navigate your way through peak hours, think again! Jumping on the surge-pricing bandwagon, the app-based taxi services are now going to be a whole lot more expensive during rush hour. Rooted in the basic economic principle of demand and supply, the aim of these taxi services is to milk the spike in demand during peak hour as best as they can – the fares are slated to be raised almost four folds for the customer (a journey which ordinarily would cost as low as Rs.7.5 per kilometre during non-peak will now cost as much as Rs.40 per kilometre during peak time).

The drivers though, are ecstatic with this new prospect, looking at it as an opportunity to make some extra cash. “It’s basic economics,” said CEO of Uber, Travis Kalanick, “We are able to get a far greater number of drivers on the system when surge pricing is in effect – higher prices encourage more supply to come online.” And he is correct, at least according to a Bengaluru-based Uber driver who said, “If Uber is surging in a nearby location, we get a text message from the company and it gives us the chance to earn more money.”

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Uber’s biggest competitors in India, Ola, have chosen to approach surge-pricing in a different manner altogether – during peak hours, Ola users will be charged a flat Rs.50 as minimum cost in addition to the actual fare. Defending their decision, Anand Subramaniam, director for marketing communications at Olacabs said, “A fixed incentive to the driver motivates him to get on to the platform when customers need him most.” Kartik Hosanagar, professor of e-commerce at the Wharton School, also feels that Ola’s price-surging scheme is more in tune with the consumer’s mind-set than Uber’s – according to him, “”A flat rate is easy for consumers to understand and surge pricing is harder to comprehend and less predictable.”

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But fret not, app-based taxi-hailers in the country, other cab providers such as TaxiForSure and Savaari, will not be following in the expensive footsteps of its competitors. “For us, the earlier you book, cheaper the rates, and since we focus on outstation travel, people plan well in advance,” said Gaurav Aggarwal, CEO of Savaari car rentals. Savaari though, is more focused on rentals for outstation travels.

We wonder how well India will react to the concept of surge pricing. Jaspal Singh, cofounder of market research and consulting firm Valoriser Consultants doesn’t look too optimistic. In his opinion, “There is a need to educate the policy makers about the same. Policy makers would need to make proper guidelines for this system.” We hate to say, we agree.

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