Deregulation, dynamic pricing can power ordinary taxis

The sharing economy has been on an exponential growth curve over the last few years and has been the subject of considerable interest to stakeholders and policymakers. Technology is pivotal to the growing concept of sharing economy, to enable scale and enhance economic impact. With mobile phone penetration at an all-time high in India and several emerging markets, technology is the catalyst, driving both popularity and applicability of sharing economy in several industries.

In India, the biggest impact of sharing economy has been felt in personal transportation space, where new-age platforms have redefined convenience for any individual to commute from one point to another. The concept has also become relevant to industries like accommodation, food and grocery, household goods and healthcare. While sharing economy is still at a nascent stage in India, developments elsewhere will surely impact the way domestic players adopt and mainstream use cases.

For the sharing economy to make further in-roads in India, sharing platforms will have to address certain key imperatives. Fundamentally, this involves fostering trust between the individuals in a transaction. A technology platform that provides transparent pricing, verified listings and background checks, and assured delivery of services will reinforce consumer faith. As the sharing economy grows, a direct consequence of its emergence is the disruption in traditional models of doing business in each of the affected industries. From kirana shops to hotels, reinvention is the byword. Today, up-front pricing before a ride with an app-based cab has challenged the ambiguity of end-of-the trip metered pricing.

For instance, the kaali-peeli taxis that have been synonymous with Mumbai for decades and formed an integral part of its transportation landscape have provided mobility to lakhs of citizens. However, they have also been affected by inefficiencies, typical of heavily regulated industries. Supply caps lead to artificially high permit costs and create non-transparent medallion systems. Metered fares also mean that kaali-peeli drivers can’t respond to market demands and fluctuations resulting in poor vehicle utilisation. Like we’ve seen in other countries, taxi drivers are undersupplied at peak time and oversupplied at off-peak times. This leads to a bad customer experience as well as cars on roads when they don’t need to be.

With the able support of the authorities, Uber conducted an experiment to test whether ride-sharing technology can be used to help kaali-peelis solve some of these market constraints and improve earnings. The results of the pilot conducted during June - July 2017 were exceptionally encouraging. Valuable insights from 50 kaali-peeli drivers who completed over 7,000 trips in two weeks demonstrated a visible efficiency improvement from 48 to 53 per cent with a 26 per cent uplift in net earnings per day for kaali-peeli drivers in the treatment group. Remodelling the business around shared economy which has ridesharing at its heart could be the solution for the inherent inefficiencies the taxi industry has been battling across the world and the moment is opportune to bring about these changes in Mumbai.

Dynamic pricing models are not limited to transport aggregators. Traditionally, airlines and hotel industries have used supply and demand metrics to alter fares. Solutions to market-based issues of dynamic pricing are currently being tested in sharing economy platforms across the world. These models are all possible due to ubiquitous and necessary knowledge. This sector is poised to grow and the entire stakeholder community within the sharing economy ecosystem including the society, government and regulators will witness its underlying benefits. The extent of success of the concept will also depend on how proactively the requirements of sharing economy are addressed from a regulatory and policy perspective.

World over, countries have realised the value of deregulation of the urban mobility sector in offering better, more affordable and reliable mobility options to citizens. New Zealand, until 1989, and Ireland, between 1978 and 1991, had a strict regime of quantity and fare controls. Licenses were traded for a cost as high as Rs 26 lakh in Wellington and Rs 96 lakh in Dublin. Within five years of liberalisation in Wellington and within two years in Ireland, mobility services doubled, leading to reduction in wait times and growing consumer confidence in for-hire mobility services. Today the benefits of flexible pricing for taxi are also being felt in Singapore, Malaysia and even Myanmar! The Ministry of Road Transport and Highways, in India in its recent report (report of the committee constituted by The Ministry of Road Transport and Highways to propose taxi policy guideline to promote urban mobility) has proposed liberalisation of regulatory framework to encourage shared transportation assets, to limit private car ownership and to alleviate acute congestion and pollution. It highlights the need for regulations to keep pace with technological solutions and how the latter should be embraced by enacting forward-looking regulations.

The proven success of the sharing economy and merits of dynamic pricing have huge potential to be replicated across traditional industries and business models and reinvigorate their effectiveness for consumers, employees and the society.

The author is Director of Public Policy, Asia Pacific — Uber