Introduction

On September 9, 2022, the Competition Commission of India (CCI) published its market study on competition and regulatory issues in the taxi and cab aggregator industry with a focus on surge pricing (Study). A summary of findings and recommendations of the Study and the self-regulatory measures advised by the CCI are set out below.

Objectives & Methodology

  • The Study seeks to, among others, find information with respect to factors affecting pricing - including existence of personalized pricing in the cab industry and perceptions of stakeholders on pricing structure, including surge pricing.
  • The Study is based on primary data collected from four cities, controlled real time experiments, stakeholder consultations, and existing literature.

Key Findings

Personalized Pricing

  • While the survey results indicate existence of personalized pricing, the two cab aggregators (CAs) who participated in the Study denied that fare is impacted by rider-specific attributes and personal history of a rider.
  • Personalized pricing does not necessarily harm consumer welfare, but there is a disconnect between business practices and actual public perception.
  • Base fare is calculated differently by CAs and varies based on factors including fuel cost, market earnings, traffic conditions, inflation costs etc.

Surge Pricing

  • Riders' and drivers' respective perceptions of surge pricing depend on various factors such as number of rides, total distance traveled, mode of payment, routes etc.
  • Surge pricing typically encourages drivers to provide more services.
  • The CAs stated that surge pricing is determined by the algorithm and depends on several factors including bad weather, weekend/leisure activities, and rush hours. However, surge pricing is independent of driver attributes

Lack of transparency and information asymmetry

  • There is asymmetry in information such as trip destination, calculation of the base fare, cancellation charges, and driver commissions.
  • Lack of transparency in pricing strategies of CAs, including with respect to information on share of riders' payment that CAs keep was also highlighted by stakeholders.

Key Recommendations and CCI's Proposed Self-Regulatory Measures

The Study has certain recommendations and has also proposed self-regulatory measures:

Description and Calculation of Fares

Recommendation

Constituents of base fare and other components are not clear to riders and the Study underscores the need to promote transparency.

Self-regulatory measure

  • Set out components of total fare on CAs' mobile app/ website.
  • Break-up of total fare to be provided in invoice
  • Set out a policy on cancellation and sharing of cancellation charges between drivers and CAs clearly.

Surge Pricing

Recommendation

Aberrations in surge pricing must be corrected through regulation, as has already been done by some state transport authorities. There must be transparency in surge pricing, including sharing the amount of increase in revenue on account of surge pricing between drivers and CAs.

Self-regulatory measure

  • Set out a policy on surge pricing including sharing of additional revenue between drivers and CAs generated from surge pricing.
  • In case of surge pricing, additional amount charged for each ride should be included in the invoice.

Transparency and Self-preferencing

Recommendation

There is a need for transparency and clear communication of business practices to riders and users.

Self-regulatory measure

  • Set out a clear and transparent policy on data collection, use of such data by the CAs, and sharing of data with third parties.
  • Preference should not be given to vehicles owned directly or indirectly by the CA platform for ride allocation.

Conclusion

Previously, the CCI has examined issues relating to discounts, algorithmic pricing, and incentives to drivers, in the cab aggregator industry. Ultimately, the CAs were not found to be dominant in the identified markets and therefore, there was no finding of any anti-competitive conduct. This Study focuses on the need for transparency with respect to policies and pricing strategies. The CCI's thrust on transparency is not new as it emphasized on the need for transparency even in its study on the e-commerce segment. Therefore, platform owners across various industry sectors would be well-advised to formulate and disseminate policies clearly and unambiguously. It remains to be seen if the Study will result in the CCI launching a formal investigation, as at least on one occasion the CCI initiated investigation immediately following release of its market study.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.