There are a lot of things in the world that we obey and take for granted without questioning, many of which are natural laws created by forces we don't fully understand: the laws of quantum physics, Hydrogen and Oxygen combine to form water, girls fall for jerks, Rahul Gandhi. Then there are some laws that seem to be of nature but are in reality man-made, like the famous laws of the supposed free markets, especially the part where ticket fares for buses and planes and in recent times, for those newfangled online cabs rise to high heavens during high-demand times. Why? If asked, the answer will readily arrive that it is "market forces at work" and then, that higher prices are being charged so the consumer can actually save money!
"See bro, you won't understand. It is complicated. It is all about the demand-supply law of the free-market capitalist modern economic awesomeness of the Kundara busstand. Just know that paying more money is good for you. And this is the method all foreign countries follow, which is why they are so 'developed'."
"Wow, that is totally awesome! Here, take my money!"
We've been told that "the market" operates on incontestable cardinal rules set in stone like the law of Gravity which we have to shut our eyes and obey as if it were religion. "Prices will automatically rise in free-markets". "Prices are decided by the markets". "That is how the market works" and so on. We are told that there are higher forces at work here and hence there is nothing we can do but shut up and pay. And us, worshipers of the free-market God, happily oblige. Have you ever stopped to think if all this was a lie? What if I told you that prices do not really go up automatically? What if this dynamic/surge pricing is just a method invented to rob naive people of their money, blinded by the "free-market" gospel? What if there is no real free-market, in India at least? What if all was a lie to make us keep nodding to them? It is time we questioned this "religion" of capitalism.
Numbers are fun when we don't question them. Like dynamically priced fares.
On the outset, let me be clear that this is not against profits because no one does business for charity; or against surge/dynamic pricing, because if people are willing to pay money for inflated services, let them. Just trying to clear some myths and fathom the reasons behind charging these high prices, and to explain that despite what everyone wants to believe, it is not the "market" that raises prices but good old human hands, with the motive to only drive profit and not to "benefit the consumer".
The Laws of Demand and Supply and Price Rise
The demand-supply or free markets law is the foundation stone of all free-market theories. It states that commodity prices increase when demand is high and supply is low and vice-versa. If there is a shortage of potatoes (supply), that will cause demand for potatoes to rise, because the few producers know that people desperate for potatoes will pay anything to get them. Producers hence will demand a higher price to make a neat profit. It has to be noted here is that potato prices did not go up because of any substantial increase in the cost of potato production, though there can be possibilities of that. The seller increased prices to make more profit playing on the desperation of the people.
It is Friday evening and you are trying to get a seat on a bus or plane to your hometown and see that fares have shot up to holy shit levels. Desperate, you bow to the lord of the markets and shell out Rs.2500 for a seat on a badly maintained Volvo bus for a 10-hour overnight journey or Rs.11000 for a cramped two-hour flight. Why? Just as it is with potatoes, the bus owner/airline know that people are desperate to travel and will pay through their multiple orifices for a seat. But there is a difference. Unlike potatoes, bus/plane seats don't have to be newly produced. The bus was bought and paid for already and was running with the same number of seats was running on Tuesday also, and fees/taxes remain the same on all days. So what explanation is there for increased ticket prices on weekends and holidays, other than the profit motive? One could say that the "free-market" was behind increased prices on both these occasions and profit was only a byproduct. Or was it? Check out prices of buses, flights, and trains between Ernakulam and Bangalore on Sunday, April 17, 2016, when Mallus returned to Bangalore after Vishu.
On a normal day, buses charge around 1000, 3AC goes for 900, flights for 2500. Why are prices so high on this day? Because that is how the market works, right? Right. Let me tell you, in a perfect free market, prices can never rise to these levels because there exists perfect competition. Anyone can enter and exit the market, there are no barriers. Everyone has equal access to technology, information flows seamlessly and so on. In a free-market utopia, the customer is the ultimate king who can choose from infinite competitors who provide amazeballs services at rock-bottom prices. But India is anything but a utopia and least of them, a free-market one. Anyway, perfect competition cannot exist in the real world, and if that cannot, perfect free markets also cannot and do not exist. Even in a not-so-perfect free-market that we assume India is, the basic principle remains that anyone can entry or exit to provide services so that prices can be kept low. But, can we? No, we cannot. You cannot just enter any market in India and start running your service because here brute force and muscle power decides the market and not the demand-supply laws. This single reality alone derails the claim that India is a "free-market". The whole premise of free markets is to bring prices down through competition and benefit the consumer and not for a few entrenched elite to make profits! And for those who say, "But prices will come down when there is no demand!", tell me, what is your actual travel frequency of weekdays vs weekends? 10:1? Or will you travel on Tuesdays or Wednesdays just to take advantage of low prices?
The biggest case in point here are the now-glamorous app-cabs that many celebrate to be the revolution to end all of India's transportation woes. You will believe them to be cheap only until you realize how they price their services, especially the infamous "surge pricing".
The Great Online Cab Pricing Deception
If you really, honestly think Uber/Ola are cheap and their fare is really Rs.6/km as advertised (disastrously), please go through your email for their receipts. Can you find one instance where the actual end bill worked out to be Rs.6/km? Do you really think that it is possible to travel from Koramangala to Indiranagar (10 km) for 60 bucks? The end fare will always be double the advertised fare because of all those "other" charges they conveniently forget to mention: "base fare" (Rs.40-80), "ride time charges" (Re.1/min) and taxes, rendering Uber/Ola fares at Rs.13-16 per kilometer in medium traffic without surge and Rs.HolyShit/km with surge. I have only twice ever taken a surge ride, once at 1.4X, and there the fare ended up at Rs.21/km, more than the maximum limit prescribed by the government (19.5/km). The second time I ended up paying Rs.514 for a 16 km ride (Rs.32/km!) but Ola was magnanimous enough to refund me the amount after I howled in protest on Twitter. But all this is not even scratching the surface on how deceptive their surge-pricing systems can be. Exhibit 1:
You got to be either completely, unimaginably drunk or a frigging idiot to call a cab to travel 2 km during the day time, and then pay 258 bucks for it. I would go with the second option and say the guy deserved to be looted. Looking at the bill, one would wonder how surge (that 142.73) can be calculated at all because the guy is supposed to get the first 4 km "free" for the base fare paid and hence there should be no "distance traveled" charge at all! This is because we don't realize how surge is really calculated, which as we are led to believe is not just a simple multiplication of the distance traveled fare with the surge. In reality, the surge is applicable to everything: Base fare, distance charges and ride time charges. For instance, we expect a 2.4X surge to work out to be Rs.6/km*2.4=Rs.14.4/km, and get a heart attack on receiving a bill for Rs.180/km instead. So, here is the mathematical fine print for the bill above: (100+0+0+1.95)*2.4=244.68+13.7=258.38. (Base fare+distance traveled+free ride time charge+ride time charges)*surge+taxes). The 142.73 in the bill (101.95*2.4)-100 is put in there just to confuse the customer. But we should still thank him because this example showed us how these cab companies really operate when it comes to their billing, like credit card companies who charge interest for everything and then skim that off the top from payments made. P.S: If you call a cab for a 2 km ride and think you can get a free ride because the first four kilometers are "free", the joke is on you.
— Ganesh (@ganeshkn) April 23, 2016
A 7.1X surge is nothing short of pure loot, something which will never ever happen in any so-called free-markets these cabs claim they represent. This in one shot throws all those tall claims of helping the customer and all their other sanctimonious bullshit right out of the window. You simply cannot justify charging minimum Rs.530 for a cab ride, unless you are charging people escaping a civil war or a Justin Bieber concert. If you were to take that cab from Indiranagar to say, BTM Layout at 7.1X surge pricing, you would end up paying around 850 bucks, or Rs.85/km after including base prices and ride time charges and then multiplying the whole thing by 7.1. Happy? Maybe a 7.1X is rare, but then again, even a 2X surge would cost you much more than any overcharging auto goon. A 2.5X surge to Whitefield from MG Road can easily dump you at Rs.30/km. Next exhibit:
— Swathi Rishi (@Swathirishi) June 15, 2015
Oh, there are lots of people who can afford to spend Rs.1000 a day just to commute to and back from office, I forgot that. And they are proud of it too! I know many people who take cabs every day to the office, doing no favors to Bangalore's traffic. I am not against dynamic pricing. If you can afford to pay 300 bucks for a 5 km ride, so be it! It is your money. However, please drop this pretense that you are paying to celebrate free markets, you are not. You are only unilaterally making a payment as ordered by the cab company for vague reasons, thereby driving up prices for everyone else too!
A word on "Ride Time Charges": Ride time charges are the most ingenious way of blatant thievery ever devised under the pretense of "free-markets". Simply, you pay for the time it takes for the ride or you pay for the time you sit in the cab usually at one Rupee per minute for no rhyme or reason, for no benefit for the consumer, fully favoring the cab company. Since Bangalore's traffic moves at 5-10 km per hour, they actually are making good money from traffic jams, literally making you "pay the price" for traffic. Oh, ride time charges are brilliant innovations of the free-market, you say? What if airlines and buses and even the Railways also decided to introduce ride time charges citing the free-market excuse? By the second? How would you like that?
Questioning the Realities Behind Dynamic Pricing
During the debate on the Delhi government preventing surge pricing by Ola/Uber, the most prominent argument was that this was automatically decided by the "market" and not by the cab companies. I digress. The most basic problem with surge or dynamic pricing is that it is completely unilateral and non-transparent. When an airline decides to charge you some magic figure as ticket price or if Uber (or Ola) decides to charge you 2.5X, there is nothing you can do to "fight" the surge. You cannot negotiate with the driver or airline. You cannot call them and ask if they can reduce the price (Hell, Uber does not even have a call center or customer care number!) Their surge charging is unilateral and one-way. They decide to charge, we have to obey and have little choice but not to take the cab or airline. So where is the free-market here, where the customer is forced to pay more? Isn't the customer supposed to be king of some sort?
We do not know how many seats are left on the plane unsold, and we do not know what price the next seat will be sold for. If the same person checks the fares for the same seat from different devices and agents, they will almost always get a different figure (I have tried). So what are these algorithms that calculate that magic figure? We don't know, we just take their word for what we pay. The algorithms have become so complicated and intricate that they no longer take into account just demand and supply logic but a lot of other environmental variables ranging from search patterns and travel habits of the user to weather patterns and competition, always trying to push the user into buying the airline's most expensive seats. And if you think that we are market savvy and can beat the airline's devices to wrangle cheap deals out of them, sorry. The buses are marginally better in this case because you can still see how many seats in the bus are (supposedly) vacant.
This is a rigged economy—heads they win, tails you lose. We are going to change that economy.
— Bernie Sanders (@BernieSanders) October 12, 2015
For a moment, let us suppose that potato prices are actually decided by the "market". But what is the case for tickets? The supposed "market forces" that ultimately present you with the magic number, the fare you have to pay to secure a seat in a pressurized metal tube, is in reality, software, software designed and written by humans. Humans who have an interest in seeing their profit always maximized. So how do market forces control this software? Only if you have designed perfectly honest algorithms that allow fares to be minimized by "market forces". Do you really think operators will do that and let their revenues fall? What if they inserted a line of code that says "IF day=Friday, ticketprice=3.5*base price" or something like that? Do you have evidence to prove otherwise? Again, do you expect these providers to be completely honest in their algorithm designs to let market forces do the price setting? You don't know anything about the real world, my friend. In the real world, prices are "rigged" in ways the consumer will never know what hit them. Here is another one.
Ola informs me that surge (peak) pricing of 1.4X is in effect for their "Micro" cabs (middle pic: the black circle and the up-arrow). But there is no peak pricing for "Mini" cabs (first pic). If you look closely, you can see the very same little car icons, representing the location of cabs, appear on the map for both categories! So, if the availability of cabs is the issue, why is there a surge for Micros and not for Minis? Either they are lying about the availability of cabs or they are lying about the location of cabs, or more likely, both. Consumers have no idea of how surge pricing works, we are just obeying their dictates. Yeah, some free-market this is! But all said and done, it is through surge pricing and by adding base fares and ride time charges that these startup ventures funded by VC money survive. If they couldn't find enough people to pay for all this, they wouldn't have sustained. These business plans are as unsustainable as most food-delivery apps that are folding up. And there is a name for misleading customers by hiding pricing information from them under the pretext of free-markets.
There was a research that was carried out on airline pricing involving 14.5 lakh flight tickets for 63 destinations on 125 different airlines, which has found that forget getting cheap deals, even most of the "common sense" rules we believe about airlines tickets to not hold true anymore. For instance, they discovered that booking two one-way tickets was in most cases cheaper than booking a return (round-trip) ticket and that booking single tickets for separate legs was cheaper than buying a single multi-city ticket! Before the arrival of the worldwide web, people had to go by the word of the travel agent for their fares. Today, you will have to go by the word of the websites, you still do not know what is going on behind the scenes. And the more you search for prices, the higher prices they will show you :) Airline pricing algorithms have evolved to become much smarter than us, and the fight was long since over. There is no way today you can outsmart them and win "cheaper" deals. The airlines have won. Free-market? Yeah, right. The report above calls this "information asymmetry".
The so-called information asymmetry has historically hampered consumers in their negotiations with market-savvy sellers.
My problem is precisely this information asymmetry. In this so-called free market, the consumer has no choice but to go by the word of the provider. Information flows only in one direction. We have no clue about how many seats the plane really has, how many are sold, and which were sold for what price. All that is decided by the airline and seats are offered to us, priced at fares decided by the airline and not really the market. What you see is prices as per your browsing and traveling habits. All that is unilateral. We do not know about the real status of the number of seats, the availability of cabs (we already saw that those little car icons are fake) or the production status of potatoes. If these service providers are so secretive with their information, how can we trust them to be fair and market-friendly with their pricing algorithms? Do we really expect these companies, run by profiteering capitalists to design their algorithms to be fair to the market and the customer? Really?
The Myth of the Indian Free Market
Instead of blindly following it, have you stopped to consider that the entire system might be rigged to protect the interest of the providers and not those of the consumers? In India, every major market or sector is in the grip of a set of established players who have cartelized themselves into oligopolies that really work like mafias and "rule" that particular segment as per their wishes: bus mafia, airline mafia, tanker mafia, real estate mafia etc. They are incredibly powerful and influential and control/influence many decisions made even at the governmental level. You just cannot simply waltz into this market, buy a couple of buses and start running services between Bangalore and Hyderabad, talking free markets. You will simply be cut out of the system (I know people who tried and were cut out of the system, brutally) The entry barrier is unsurpassedly high because the cartels do not like competition. Sorry, but anyone who thinks that private-sector India is a free-market economy should have their heads examined.
What if all the bus owners have come together and have decided that it was in everyone's interest that fares on weekends remain high and hence are artificially kept high? The only chance for prices to reduce (as per free-market economics) is to introduce more competition into the system, which the cartel will make sure won't happen, and hence prices remain high. What you have in India is not free-markets but price-fixing. And it is not just India, these oligopolies are everywhere. Banks do it. Hospitals do it. This price-fixing is what keeps rich people rich and richer while everyone else flounders. And the free-market worshiping yuppie idiots, proud that the system is "free and fair and devoid of any government control", happily pay up believing that they are supporting "free markets". Oh, this kind of price-fixing isn't possible you say? You still say "markets" determine these prices? Sure. Here is another more familiar example on why India is not a free-market economy.
As per a recent estimate, 1.2 crore finished apartments are lying vacant across the country for want of buyers. And at the same time, there are lakhs of people wanting to buy houses but are unable to, because these vacant apartments are insanely priced beyond their reach (1 crore for a 3 BHK). So we have a funny situation here that laughs in the face of every economic theory known to man. We have both a big demand and an enormous oversupply of a commodity, but prices of the commodity refuse to come down to the levels where supply can meet demand. According to the free-market doctrine, prices of apartments should come down to meet the paying abilities of the consumer. Instead, apartment prices remain high and even go up to remain out of the reach of the consumer to favor only a few very rich elite who can afford them! Free-market you say?
Image Courtesy: Milt Priggee | miltpriggee.com
"Prices are kept artificially high by unscrupulous builders on the back of black money and etc.!"
Exactly. That is how a rigged system looks like, my friend! We all know about all the power and clout the Indian real-estate mafia has, and how they dictate prices in the market. The market is not sacrosanct. If you are powerful enough, you can control and manipulate those seemingly untouchable "markets", as the Bangalore / Mumbai / Noida / Gurgaon / Pune real estate market will show you. And this is true for every single market in India. If a sector like real estate where supply far outweighs demand can be rigged to favor the provider, why does anyone here think that most sectors in India which all have more demand than supply have any chance of functioning as a free-market when nice money can be made by manipulating them? Schools, anyone? Do you think a "free-market" would make you pay 150,000 for a year of Kindergarten?? What about that most "free-est" market of them all, that of vegetables? What if those cyclic shortages of vegetables (onions today, potatoes next week, tomatoes the week after) are engineered to create artificial shortages by hoarders and middlemen backed by powerful politicians?
There is no free-market in India, but only the price-fixed crony-capitalist mafia-market manipulated and managed by cliques of powerful industrialists and backed by politicians. It is all rigged. We are too big a country with too many people vying for resources that are actually unlimited but kept artificially scarce by the mafia to keep the supply always lower than the demand. The "free-market" here is always a one-way street that favors the provider, which is also what drives the much-touted dynamic/surge pricing excuse. As long as politicians rule over us like kings on the vestiges of a system that is more colonial than democratic, this will only continue. So how do we defeat dynamic/surge pricing? Government regulation is not the answer. The only answer is by voting with our feet and wallets. Refuse to take cabs that mindlessly overcharge. Wait out the surge. Take the bus. Take a usual taxi because with anything more than a 1.5X surge you will be paying more for an app-taxi. The profit seeking corporation cannot be the sole arbitrator of prices, dictating how the consumer should live and spend money.
The Neo-Liberal Indian Support for Dynamic Pricing
Again, I am not against surge/dynamic pricing. People should be allowed to pay insane amounts for cab rides if they feel they have too much money and/or no value for it. However, what I can't seem to understand is the undying support many people show for dynamic or surge pricing, even if it drains their bank accounts. Are people so rich that they are ready to give away money to cab companies? Not really, there is something societal and ego-related to this too. These supporters come from a demographic I often refer to in my posts, the neo-liberal corporate Indian yuppie, mostly employed in new-age professions.
Every true free market supporter feels only loathing for the vermin-like neo-rich in India. They are destroying the the free market.
— HindolSengupta (@HindolSengupta) March 28, 2016
Having seen a lot of the western world, they want India to be like the west, and (rightly) believe that the cause of most Indian ills is its old, socialism ways of functioning. By supporting what they believe is free-market dynamics (along with the use of English, personal transportation, and consumerism), they like to think that they are confirming to the processes that make the western (American) world "great". They want to be seen as "modern", part of the "new India" where those government regulations that they hate and loathe so much do not apply, a brave new world of free-markets of which they are the arbitrators, living an Indian version of the American Dream that they think will make them prosperous. Just like showing off new gadgets and Guccis, traveling by "Uber" is their latest status symbol, which they use to safeguard their class standing, which is why when Indian Railways decided to introduce dynamic pricing the biggest howls of protest emanated from them, they who never even travel on trains!
What they don't realize is that by happily paying up for surge prices, the only thing they are confirming to is the dictations of the pricing-mafia and in the bargain they are driving up prices (it is widely acknowledged that clueless NRIs overpaying for everything is the reason behind high living costs in Indian cities) and thereby destroying the real free-market with their pretensions. They are also making rich people richer and themselves poorer, though they are led to believe vice-versa. Crony-capitalists working to make other people richer? LOL. Remember the mafias mentioned above? How did they get so rich and powerful? Because these blind mice so-called tech-liberals happily oblige and pay what is asked from them. This entire "free-market" premise is the "Matrix" that the powerful ruling elite has created to keep naive Indians blind to realities and under submission by propagating the illusion that everything is free and fair. All Blue Pills everywhere.
Please do pay if you can afford it but remember that only a marginal few can, and not everyone is ready to shell out their money to celebrate "free-markets". You can be pretentious all you want, but there exists a real India beyond your shiny bubbles that silently controls your life, one that you can't wish away by paying any amount of surge pricing. Airlines and app-cabs and their pricing models cater to only less than 1% of people of this country, and there are a shit ton of us out there who can't afford them. So please shove your self-righteous dichotomies on how it is the all-honest, all-encompassing solution to all the woes of the planet. Free-market, yeah right!
P.S. "Today, we have a choice not to take a cab!" say the fanbois. Yes, today we do. In the not-so-distant future, these VC-funded startups will have bulldozed all forms of competition, eliminated all choice, monopolized transport option and thereby enslaved all of humankind. I can't wait for that dark, dystopian future, just to see the looks on their faces. #NotSarcasm
More P.S. So if these app-cab business models aren't sustainable, how do we really provide a comfortable, sustainable, economical and convenient solution to transportation problems in Bangalore? This is how.