|Pakistan Isn't Quite Getting The Idea Of Uber And Ride Sharing|
Tim Worstall ,
That there should be some regulation of Uber and other ride sharing companies seems entirely logical. Making sure that the vehicles have insurance for example would appear sensible. Price regulation though is just not one of those sensible things, something which has escaped the regulators in Islamabad in Pakistan:
Moreover, Muzaffar suggested that facilities for issuing route permits for vehicles working for ride-sharing services would be ensured. There are several innovations in the ride sharing business but from the economic point of view the most important is the ability to have variable pricing. This is very much the same thing which has driven the rise of the budget airlines, the ability to alter prices dependent upon demand. However, with taxis we've one more point to add, we can and do vary supply significantly dependent upon those changes in demand.
The app-based services would also be forced to display customised stickers on the front and back windscreens of vehicles.
“We would issue a fare list to the app-based services which they would have to follow strictly,” Muzaffar said, adding that insurance for passengers insurance would also be mandatory for their safety.
One of the great successes of technical economics in recent decades has been the advance in the understanding of auctions and matching. Al Roth's Nobel came in part from this. Hal Varian's work at Google on matching advertising demand and supply, varying price to do so, has made fortunes for many people. Governments everywhere are delighted with the manner in which they're making money off spectrum auctions for the mobile phone business. This is all rather the same underlying mechanism at work here. And Uber, Lyft and the rest are applying much that same mechanism to the taxi business.
We're talking very basic Econ 101 at heart, that supply and demand curve thing. In some of these cases we're saying that supply is fixed--say, spectrum. Then we should be allowing the price to keep going up until no one is willing to pay any more. Airlines have fixed short term supply capacity, much more variable in the longer term. Taxis might have fixed supply right now but can ramp it up in an hour or two. Which is where that variable pricing comes in.
If there are 10 cabs on the roads and 9 people want a ride then one of the drivers is out of luck and might as well go home. If there're 10 and 15 people want rides then 5 people are using Shank's Pony. Except, with cabs, we can raise the price being charged and some of those 15 might well decide to walk anyway. But also we'll get one or more extra drivers coming out onto the road and thus increase supply. This is the very point of the system in fact, new technology enables us to both collate and transmit supply and demand in real time, thus enabling price changes to balance them again in real time.
Which is the bit the regulators in Pakistan's Islamabad are missing--the whole economic point of Uber and the ride sharing services is that they don't have a fixed fare structure.