Surge pricing: Outright ban ‘counterproductive’, tricky to set a cap, say experts

NOT JUST ABOUT DOLLARS AND CENTS

When it comes to the frustration around surge pricing, the problem boils down to society wanting the point-to-point industry, and taxi and private-hire drivers, to operate as though “they were a social and public service that has the objective of providing a good supply of rides at a reasonable price”, said Assoc Prof Theseira.

At the same time, people “want the industry to absorb all the risks from the market”. But one cannot have both at the same time, he added. 

“To expect (an increase in supply without surge prices) would be to expect potential taxi and private-hire drivers to want to provide cheap and reliable rides when there may be more lucrative jobs available elsewhere. Taxi and private-hire driving is not a charitable activity and people do not volunteer to do these jobs. So the prices need to be high enough to produce an increase in earnings which will then encourage more drivers into the job.”

Addressing the price surge is about valuing the work that drivers do, added Assoc Prof Theseira.

“If Singaporeans believe – as I think they naturally do – that they would work harder in a job or apply for a job if wages were more attractive, and be less inclined to do a job if wages were poor, then why do they expect taxi drivers and private-hire vehicle drivers to behave differently from themselves?” he said. 

“There is also a certain amount of circularity in how we value work socially and what we pay for work. Many jobs have acquired their respectable character in part because they pay very well and not because of anything inherent to the job.”

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Assoc Prof Theseira doesn’t think people will “suddenly respect taxi and private-hire drivers overnight if the fares go up”. Instead, the “most practical thing” to get people to respect these professions is to “let the market wages for jobs that perform important services for us as taxi and private-hire driving does rise to reflect the value we place on having a safe and reliable ride”, he said. 

“If you want an industry to operate as a social and public service, for example, like our hospitals and public transport services do, then you need to also make a commitment to help reduce risks to the industry. … (So) in public transport, we subsidise operators when fare revenue is too low to cover costs.”

These subsidies have come in the form of income and rental support, for example, over the last two years of the pandemic. 

But with the economy reopening, Grab ensures its drivers continue to “earn a sustainable income” by keeping a close eye on the “macro environment”. 

“For example, when fluctuating fuel prices increased our partners’ operating costs, we have rolled out a series of initiatives including a temporary driver fee, fuel discounts and commission rebates to support them,” the company said. 

It added that flexible work opportunities are provided for “a diverse group of driver-partners … to access equitable earning opportunities”.

“Apart from our regular transport services, we have continuously invested in and launched services such as GrabAssist, GrabFamily and GrabPet. These services help our partners earn a higher fee for their time and effort, while enabling them to remain relevant to new and growing consumer segments,” said the Grab spokesperson. 

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“We have also worked with merchant-partners to expand and promote a wide range of delivery services which enable our driver-partners to also benefit from the rapid growth in e-commerce.

SURGE PRICING “LIKELY TO CONTINUE”

At the moment, Dr Ong believes surge pricing is “likely to continue”, partly because it gives drivers more incentives to make a living.

“If, let’s say, surge pricing is not going to continue, then what next? Then it’ll be a purely regulated industry … So then you’ll go back to the pre-ride sharing era, where you start to see people (unable to) find taxis during a certain period of time or at certain locations because it’s not profitable,” he said.

“We have to think about this surge pricing problem also from the driver’s point of view. They’re also having a demand and supply problem; they also need to make a living. What is the incentive to go to such (non-profitable) places to pick up customers? … This would lead to a decline in the overall level of service in this entire private-hire car and taxi industry.” 

In the end, resolving the “supply situation” might simply require surge prices and earnings to be “robust enough” that “new drivers get enticed to take up point-to-point driving and existing drivers extend their operating hours or take up part-time driving work”, said Assoc Prof Theseira.

The same principle applies to vehicle availability, he added.

“Taxi operators and private-hire vehicle fleet operators increase vehicle supply when there is robust demand for rentals, and that demand is directly driven by whether potential drivers think it is worthwhile to enter driving.”

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But a longer-term approach for more sustainable living, suggested Dr Ong, is to look at public transport like buses and MRT as a “viable competitor” to the taxi and private-hire car services. 

“From my origin to destination, there are competing choices. It’s not just taxi and private-hire cars. There’s also bus and MRT. Or if the place is really, really near, there’s also walking and cycling. So I will tend to look at this as an entire ecosystem of a journey; where I’m going and why I’m doing certain things,” he said.

“And this is where I think the liveability aspect comes in, because liveability has to take care of a multitude of options which consumers would logically choose.”

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