Surge Pricing - Old Practice with a Digital Makeover

Surge pricing causes governments to take action against digital disruptors. Surge pricing, although not a new phenomenon, is more easily done by online businesses where customers book services online. Surge Pricing - increasing prices when demand exceeds supply - is an old practice that business, such as airlines and hotels have been using for years and even in some cases deliberately limiting supply to keep prices up. Digital disruptors have become convenient scapegoats despite many other businesses using surge pricing of one sort or another.

Times of India reports that Karnataka succeeded in doing to cab aggregators what even the New York mayor failed to do, despite some intense efforts for two years. The state has significantly constrained the aggregators' ability to do what is called surge pricing, raising prices during periods when demand for cabs exceeds supply -- at peak hours these could be three and four times the regular fare.

On Thursday, a day after the official announcement about capping fares at Rs 19.50 for AC cabs and Rs 14.50 for non-AC cabs, both Uber and Ola stopped surge pricing. Repeated checks by TOI during peak hours showed that prices remained stable.

Uber and Ola have so far declined to comment on the state's move, but Uber has said many times in the past that surge pricing is an essential part of its operations, that by raising prices during peak hours, it encourages its drivers to get out on the road to keep up with increased demand. It is also widely believed that these higher prices contribute significantly to the aggregators' revenues and to drivers' incomes.

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