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Summary: What self-regulatory measures India wants cab aggregators like Uber, Ola to adopt and why

CCI in September published its market study into cab aggregators like Ola and Uber that examines pricing and transparency and makes recommendations

 

The Competition Commission of India (CCI) in September published its market study into cab aggregators that examined three broad issues:

  1. Whether personalised pricing exists in this industry and, if so, does it require regulatory intervention, or does consumers’ satisfaction balance the potential damage that dynamic pricing poses?
  2. What are riders’ perceptions about surge pricing? Is surge pricing necessarily a rent-seeking behaviour? Does it require any regulatory intervention?
  3. Are there concerns related to transparency of the pricing structure and fare calculation? If yes, what are the broad areas for bringing transparency?

Why does this matter: Both consumers and drivers have frequently complained about the lack of clarity and transparency in how ride-hailing platforms calculate fares especially surge pricing, among various other issues. These concerns have been under the lens of the government for a while now. In May this year, the Ministry of Consumer Affairs (MCA) warned cab aggregators of strict action if they did not improve their policies. The market study not only sheds more light into the various concerns held by riders and drivers but also provides recommendations for aggregators.


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Do cab aggregators engage in “personalised pricing”?

Study found aggregators indulging in personalised pricing: The study found that CAs did indulge in personalised pricing based on the possession of personalised data about riders. “The information collected from a survey of a diverse spread of 2000 consumers/riders across four different cities on multiple parameters revealed the perception of riders that the pricing computed by CAs takes into account several factors, including distance travelled, number of trips, type of ride, mode of payment, nature of mobile handset used, etc., which may play a role in price determination. Further, the controlled experiment carried out by the study team also indicated that fares vary across different search rounds for a particular individual (based on demand and supply dynamics) as well as for different individuals in a particular round (personalised pricing).”

What CAs had to say: The study does not name the CAs but notes that two CAs who furnished information to CCI had different stances on personalised pricing. “Responding to a specific question, both CAs informed that the base fare cannot typically be different for two individuals who book a cab (of the same category) at the same time, from the same location and for the same destination. With respect to total fare, one of the CAs stated that it cannot be different for two individuals who book a cab (of the same category) at the same time, from the same location and for the same destination. However, discounts/promotions can be different for two individuals, resulting in different net payments, though such discounts/promotions are not personal to each rider but are offered based on multiple factors. Meanwhile, the other CA stated that the total fare can be different for two individuals who book a cab (of the same category) at the same time, from the same location and for the same destination. This CA also informed that the discounts offered to each rider are personal and provided based on the booking characteristics of a rider, revenue of the ride, corporate tie-ups, etc.”

Surge pricing not impacted by rider-specific attributes: “With respect to surge, one of the CAs stated that surge may be impacted by the type of city, for instance Tier I and II; distance to be travelled by the rider; type of ride, i.e., shared/pool, economy, premium; time of day, etc. But both the CAs have disagreed that it can be impacted by rider-specific attributes and the personal history of a rider,” the study notes.

Should surge pricing be regulated?

Riders are aware of surge pricing, but are fine with it:  The study found that riders are aware of the existence of surge pricing, but do not seem averse to the concept. Although, sometimes the surge had been higher than expected by the riders. “The results based on econometric analysis (path analysis) indicates that, despite app-based cabs being expensive at times, people are willing to pay ‘surge’, keeping in view aspects such as ‘convenience’ and ‘driver’s behaviour’. Thus, surge pricing in the cab industry does not necessarily exhibit a rent-seeking behaviour due to the consumer’s satisfaction on account of convenience and availability of technology-driven cabs.”

Ministry finds lack of clarity on how surge is calculated: The study also refers to a opinion shared by the Ministry of Road Transport and Highways of India (MoRTH), which finds a lack of clarity on calculation of surge pricing and how high the surge can be. “They acknowledged that several instances have been reported where surge pricing has gone as high as 2–5 times the base fare, especially during exigencies such as rain, storm, traffic conditions and other unforeseen emergencies. The Ministry is of the view that such unregulated surge pricing, especially at the time of need, can lead to exploitation of consumers.”

Surge pricing attracts drivers: State governments, during the consultation process held by the MoRTH, “opined that while surge implementation is in favour of cab aggregator and may be contrary to the consumer’s financial interest; but it may help in attracting cab owners (drivers) to integrate with the aggregator.”

Discrepancies in surge pricing shown to rider and drivers: Drivers informed CCI that surge pricing charged to riders is different from what is displayed to the drivers. “Thus, though it may be possible that part of the surge that is being charged from the riders and that being shown to the drivers does incentivize drivers to increase supply, part of it seems to be kept by the CAs themselves.” While one CA categorically stated that surge is same for both riders and drivers, another did not comment on it.

“The study team observes that though the CAs have claimed otherwise, there seems to be an ambiguity between the driver’s knowledge of the surge as well as the exact component of the same being shared with them by the CAs. Had there been greater transparency as regards the surge being charged from riders and surge being passed on to drivers, it may have reduced this information asymmetry and led to better functioning of the markets in addition to incentivising the drivers to increase supply,” CCI opined.

Precise surge amount not shown to riders: While CAs convey to riders that surge pricing is being applied, the precise amount is now shown and surge in incorporated into total fare instead. “This listing of consolidated price upfront is stated to be in consonance with other segments like travel and tourism industry, including hotels and airlines. CAs also stated that the drivers are informed of the surge at the time of dispatch, which they can also check in app later for a particular trip,” the study observes.

How non-transparency impacts riders and drivers?

Non-transparency in various aspects: The surveys and experiment conducted by CCI “pointed towards non-transparency in various aspects, such as each ride being uniquely priced in the CAs’ industry, a particular rider receiving different fares for an identical entry and destination point in subsequent rounds of the controlled experiment, the existence of a base fare differential indicating personalized pricing by one of the CAs, drivers’ perceptions that the surge applicable on a ride requested often by a particular rider is different from the surge offered to the driver and the price, including the surge component/multiplier, is calculated by algorithms.” These observations are sometimes in contrast to what the CAs told CCI, the study notes.

Motor Vehicles Guidelines requires transparency from aggregators: “Clause 9.6 of the Motor Vehicle Guidelines 2020 states that the aggregator has to ensure ‘transparency in its operations including but not limited to functioning of the app algorithm, proportion of fare payable to the driver, incentives given to driver, charges received from the driver and such other information as may be notified by the state governments, by making disclosures on the Aggregator’s Website and App and updating such disclosures, as per requirement.’,” the study notes.  “However, these are model guidelines, and final implementation rests with the state governments.”

Algorithms don’t involve data crawling from other CA platforms: “With respect to algorithms, CAs have responded that pricing on the platform is dynamic, and the algorithm is structured to automatically calculate pricing based on supply, demand and other conditions. It is also informed that algorithms are continuously improved based on cumulative experience but are not engaged in data crawling from other CA platforms.”

Is there a lack of level play field?

Traditional taxi operators find an unequal playing field: “During stakeholder consultation, traditional taxi operators as well as their drivers/union leaders claimed that there is a lack of a level playing field, as the CAs are not subjected to the same regulatory costs as traditional taxi operators owing to different business model, and thus, it makes it difficult for traditional taxi operators to compete with CAs,” the study states. “Since these cabs also take passengers to their destinations for a metered fare and functionally satisfy the same end use, some degree of substitutability between them and erstwhile taxis may not be completely ruled out,” CCI opined.

The Motor Vehicle Guidelines attempt to bridge the gap: “The Central Transport Authority is of the view that the Motor Vehicle Aggregator Guidelines 2020 makes an effort to bridge the regulatory gap between traditional taxis and CAs. Further, the Authority is of the view that, with changing mobility trends and technology disruptions, this gap will get further reduced,” the study notes.

Different target groups for CAs and traditional taxis: “Meanwhile, the Rajasthan Transport Authority highlights that CAs work only in big cities with a population of over 8 lakhs and provide intra-city services in urban areas, whereas the traditional taxi industry normally provides services on an inter-city or inter-state basis. Meanwhile, the Madhya Pradesh Transport Authority is of the view that clients for both traditional taxi players and CAs exist—just that some passengers prefer traditional taxis, while others prefer CAs,” the study adds.

What are the recommendations made by CCI?

“Given that many of the concerns raised in this study may not strictly raise competition concerns, the study concludes with a broad policy perspective, having relevance for other regulators as well. In addition, adoption of self-regulatory measures by CAs to inculcate best practices for ensuring well-functioning ecosystem may be desirable,” CCI noted while giving the following recommendations:

  • Show different components of total fare: Although “riders get to know the up-front fare or estimated fare before booking the ride on CAs’ platform, there is ambiguity as regards what all components or heads form the basis of such fare calculation.[…] Hence, transparency regarding total fare in general and all its different components amongst drivers and riders needs to be promoted.”
  • Caps on surge: “To avoid extremely exploitative price situations and also ensure that consumers remain protected in case algorithms malfunction, the transport regulators at times impose a ‘cap’ on surge.”
    • Caps proposed in Motor Vehicle Guidelines: “In India, now with the release of the Motor Vehicle Aggregator Guidelines 2020 (November 2020), the Central Transport Authority has also paved the way to put a check on unregulated surge pricing, especially in times of need, to stop exploitation of riders. The guidelines have proposed a floor (0.5 times base fare) and ceiling (1.5 times base fare) for surge pricing to ensure reasonable affordability for consumers, while giving flexibility to the CAs to manage supply and demand. According to the Ministry, these figures were finalized after extensive stakeholder consultation and benchmarking with the states and other countries. Now, the states and the UTs have been advised to follow these guidelines to formulate state- specific regulations,” the study notes.
    • Caps in other countries: The study also points out that other countries like the US, Australia, Egypt, and Hawaii have imposed various caps on pricing by cab aggregators.
  • Transparency on various aspects to reduce information asymmetry: “For promoting conducive environment in the CA industry, it is important to address concerns regarding transparency at various levels which have emerged during this study. There seems to be considerable dissonance in the actual stated business practices of the CAs and the knowledge of the riders and drivers with respect to surge and base fare differential, emphasising the adoption of better transparency prescriptions on the part of CAs to convey their actual adopted business practices more coherently and unambiguously among riders and drivers,” CCI recommended. The regulator also called for a “greater transparency on the quantum of surge as well as the sharing of such surge among drivers and CAs.”

This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.

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