When there’s demand, there’s surge, dynamic pricing, blackmail

ANANT RANGASWAMI

Anant Rangaswami

There was a furore when some private airlines decided to charge as much as Rs 1 lakh for a seat on Chandigarh-Delhi flights during the recent disturbances in Haryana. How dare the airlines do this?

It’s blackmail and unethical, many newspapers and news TV channels said.

In a free market, it’s neither blackmail nor unethical; it’s a case of the airlines following the rule of supply and demand. The greater the gap between the supply and demand, the greater the opportunity to raise prices.

It’s not just the private airlines that understand economics. Indian Railways does so as well, milking the traveller with the premium tatkal pricing, where they use the same principle as the airlines do and charge as much as 4-5 times the base price. For the unaware, this is not the same as the plain vanilla tatkal, where the premium is fixed and predictable.

Errant autorickshaw and taxi drivers often ask for twice the fare and consumers immediately brand the culprits as thieves and blackmailers.

Car hire and app companies such as Uber and Ola do the same as the autorickshaw drivers, but they’ve coined a new term for the blackmail: surge pricing.

Tatkal. Surge. Dynamic pricing. Blackmail. Different nomenclatures to describe essentially the same business tactic: extract greater price at times of shortage.

What is it that allows us to ‘understand’ and accept Uber’s surge pricing while getting hot under the collar with the autowallah and the taxi driver? Much of it is in the packaging. “Our goal is to be as reliable as possible in connecting you with a driver whenever you need one. At times of high demand, the number of drivers we can connect you with becomes limited. As a result, prices increase to encourage more drivers to become available,” says Uber on their website. The emphasis is mine.

So Uber does not increase the price with a view to fattening their own wallets, they do so to help you, their loved customer, get connected to a driver soonest, it seems. Uber is helping you, not fleecing you.

What about airlines and the railways, then, you ask? Why do we accept ‘dynamic pricing’ and yet lose our cool with the autowallah? Much of this acceptance is to do with the fact that we’re dealing with a computer in the case of airlines, the railways and the Ubers of the world. There is no human interaction in any of these transactions, just a screen on your computer or your smartphone.

And we all know how stupid it is to get angry with a screen.

In the case of the autowallah, he, a human being you are talking to, has the gall to blackmail you. In the other instances, the computer did.

Let’s face it; we’re going to see more of this phenomenon of dynamic pricing, irrespective of what we call it. We’ll see it as long as there’s a gap between the supply and demand for a product – or a service.

In fact, I hope we do. Could a popular restaurant or bar charge a premium on a table that looks like any other table just because it’s Friday night and eager consumers are queuing up to get in, some pleading, some begging, for a table? It is the opposite of happy hours, when the outlets increase demand by reducing prices. It’ll work, because surge, dynamic pricing, tatkal or whatever you call it end up with one big consumer benefit: you get to jump a queue.

And that’s what Indians love. Jumping queues, by fair means or foul.

The writer is Editor, Storyboard