Hi Friends,

Even as I launch this today ( my 80th Birthday ), I realize that there is yet so much to say and do.

There is just no time to look back, no time to wonder,"Will anyone read these pages?"

With regards,
Hemen Parekh
27 June 2013

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 !


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 ?

 03  June  2016

www.hemenparekh.in / blogs   


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