Surge Pricing-What Is It and Do You Have to Pay

Among the things that last month's Odd-Even Again threw up was that yes, things are different in summer and when school is on; plus we got to hear a lot about Surge Pricing or Dynamic Pricing as it is also called. We all heard that taxis were charging more (up to 4.7 times more; blackmail rates some called it) when Odd-Even was in place. It is a concept that many of us had not even heard about before and suddenly there were TV debates dedicated to the concept of Surge Pricing: ethics, commercial requirements, and the laws of demand and supply.

What is surge pricing?

According to taxi services such as Ola and Uber, surge pricing is put into effect when the demand is higher than the supply of taxis and drivers. It works like this: drivers who would otherwise not be bothered to drive in heavy traffic or routes that may be inconvenient may be more inclined to ply their taxis when their trips are incentivized by higher pricing. So when you're in acute need, paying more will make it more likely that you will find a cab when otherwise you may not. So surge pricing actually helps increase supply when the demand increases. Consequently it also helps keep base fares low at other times.

The surge pricing is demand driven and is governed by an algorithm that comes into play when the demand is higher than supply in a given area. There are several parallels of surge pricing in various sectors: when demand is lower, airlines typically incentivize sales by selling their tickets cheaper (anyone save a packet on the red-eye flights?) Similarly, hotels charge more in season and offer discounts off season. In retail as well, pricing is higher when demand in higher. Prices can even differ as per the time of day that one shops.

So do you have to pay surge pricing rates?

The reason that surge pricing got so much bad press during Odd-Even was that people felt that they were being taken advantage of and were being made to pay extra for no fault of their own. The government ruling that prohibited people from using their car on a given day required them to use a cab for getting to work, for emergency situations and so on. The perception was that the government was responsible for permitting cabbies to fleece commuters in need.

So is it extortionate and can you refuse to pay? No it is not and you cannot. This is not cabbies taking advantage of Odd-Even, it is algorithm that kicks in anywhere and anytime demand outstrips supply. You are informed beforehand that you will be paying a higher rate. Surge pricing follows simple demand and supply; it also helps in providing services when really required and keeps base fares lower generally speaking. So really, the ban on surge pricing is not a good thing!

If you feel that your requirement is not so important as to merit the extra expenditure, you are free to refuse to book the cab. If you feel you're being taken advantage of, take the bus or the metro. Or walk.