In " Economics 101 " , we learned :
* There is a
close - and reasonably predictable - relation between DEMAND / SUPPLY and PRICE
, in an environment of free competition
* Price goes up
when Demand goes up but Supply fails to keep pace
* If Demand shrinks
but Supply does not slow down , Price goes down
Only problem for the policy makers is :
* Increasing
Supply , often takes weeks / months / years , even when Competitors are allowed
free / easy entry
All that policy makers, can do is initiate some steps to
increase competition
* Consumers like
Price to go down , so they want Supply to continue unabated , irrespective of
the viability / survival of the Supplier
!
* Pleasing ,
both the Consumers and the Suppliers ( of goods or services ) , is very
difficult, through Rules / Regulations , because Rules / Regulations cannot be
changed as fast as changes in Demand / Supply
So what happens , in near terms ?
# Uber / Ola ,
jack up their price when demand goes up and lower prices when demand goes down
And , unlike
old days , these price-changes happen automatically / dynamically / instantly ,
based on Mobile App algorithms , without anyone debating ( to be or not to be ?
) and making a conscious decision
Now , I believe , governments of Karnataka / Delhi ,
are trying to place a " Cap " on the maximum price that Uber / Ola
can charge ( for a fixed distance )
In my opinion , this capping , should be a strictly
temporary thing and it would be in the long-term interests of the taxi-riders ,
if these governments take pro-active steps to bring in many more " avatars
" of Uber / Olas
On the other hand , various Airlines ( in India ) ,
have been resorting to such " Surge Pricing " for years ( - and ,
often with the blessings of the policy makers ! )
And , I suppose , the State Governments plead
helplessness , since Air flights are inter-state !
# Only 3/4 years
ago , every time Government-controlled Oil Marketing Companies ( HP / BP / IOC
) raised petrol prices ( once in 6 months or so ) , there used to be huge
demonstrations / rasta roko / bandhs etc , all over India ( no doubt ,
organized by the Opposition Parties )
On many such occasions , government was forced to
withdraw the increases
But , what happens now ?
Oil Companies increase / decrease their prices , every
fortnight !
And it gets reported in small prints in corners of
newspapers !
Not a single political party leader even mentions it in
passing !
And that is also what OPEC itself does !
MORAL OF THE
STORY :
Consumers don't like sudden " Big Shocks " ,
even after long intervals
But they will readily absorb " Small Irritating
Price Increases " , if administered , every week / month !
Why is it that Policy Makers fail to grasp this
fundamental human psychology ?
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03 June
2016
www.hemenparekh.in / blogs
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