Thursday, 2 June 2016

Surge Pricing and Other Stories


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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