This Is What Surge Pricing Really Is And Here is Why Cab Operators Think Its A Good Thing

Admin 21-Apr-2016 14:36:29 Inothernews

This Is What Surge Pricing Really Is And Here is Why Cab Operators Think Its A Good Thing


Delhi government had decided to reign havoc on app-based taxi services like Uber and Ola for over pricing during peak hours during the ongoing second phase of the odd-even traffic restrictions. According to reports, cabs were charging up to five times higher the original amount from passengers. Following numerous complainants from users, Delhi government warned the likes of Uber and Ola against overpricing, forcing them to withdraw the pricing technique for now. Later, the government said it won't allow surge pricing even after April 30, when the odd-even ends.



So what is surge pricing?

Surge pricing comes into effect on cab aggregation platforms like Uber and Ola when customers have to pay a multiple of the usual fares.

The fares automatically increase when the demand for taxis is higher than the drivers available in a particular neighbourhood. These apps show customers that the fares are surging and if you accept the surge, your ride is booked with the increased fare.

How is it determined?

Surge works on a pricing algorithm which maps the demand and supply in every area and hikes the price accordingly. Surge pricing can sometimes be as high as 7-8 times the regular fare.

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Why do apps use surge pricing?

Aggregators says surge prices encourage more drivers to get back on to the roads and help them earn more money. Drivers make 80% while cab aggregators take home 20% on each ride and the same applies during surge pricing. The increased fares act as an incentive and make more drivers log in to an Uber or an Ola.

Can supply scarcity be created artificially?

There's a theory propounded that cab aggregators create an artificial scarcity as drivers stay home and turn off their devices at certain times.This creates a supply slump and the pricing mechanism jacks up the fares. Taxi-apps, however, deny this allegation.

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