Surge Pricing and Economic Theory

The article ( The Mint Dated 8/5/2016) reads well but the applicability  of its contents in Indian context is limited. The surge pricing pursued in Indian Cities by cab aggregators is a reflection of their  greed and has nothing to do with demand and supply. Suge pricing by cab aggregators in Bengaluru and other places using the Computer algorithms in the garb of taking care of excess demand over the supply is atrocious and does not speak of the reality. The cab drivers with whom I had interactions informed that they keep their mobiles busy or engaged and create an artificial mismatch between demand and supply. Once the shortage is created in a matter of few seconds , the surge pricing operates and supply position improves.The surge pricing is three or four times or even five times and it cannot be said to be fair by any ethical standards . No economic theory can justify the surge pricing when the intention behind is to loot using technology and ignoring ethics and values. Unfortunately in India the Governance standards have reached their  nadir and markets have been made imperfect.The inequality of income levels has made the surge pricing technically acceptable as many are in the high income brackets with black money and without black money and improved affordability. The surge pricing is nothing but exploitation, day light robbery and outright cheating with the blessings of the authorities. 

What ever is pursued in advanced economies and their economic theories need not be true and applicable to countries like India and emerging economies. The Income levels, the efficiency of  transport system, governance standards,differ from country to country and understanding and application of technologies also varies to think of uniform application of all economic theories.Surge pricing in India cannot be justified based on demand and supply and the pricing mechanism adopted by the tax aggregators and air services are totally unjustifiable especially when the supply is more and demand is less. This can be easily verified if one were to conduct a survey on supply and demand for cab services in cities where these cab aggregators operate. The same is the position in airlines where one can observe lots of empty seats and surge pricing for the occupied. seats. Surge pricing coming out of greed cannot be justified applying the economic theories intelligently exploiting the weaknesses of Governance standards,inequality of income levels,ignorance and helplessness of some people .

Dr T V Gopalakrishnan.