Indian Competition Authority releases its market study findings on the Taxi and Cab aggregator industry

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Personalised pricing

Cab aggregators were perceived to be and found to be (based on the controlled real time experiments) engaging in personalised pricing. Further, the possession of personalised data on the consumers (i.e., riders) facilitated personalised pricing by cab aggregators.

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Ambiguity surrounding the calculation of ‘total fare’ payable: Pricing computed by cab aggregators takes into account several factors such as: (i) distance travelled, (ii) number of trips, (iii) type of ride, (iv) mode pf payment. (v) nature of mobile handset used.

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Actual pricing methodology adopted by cab aggregators: There was no evidence to indicate that personalised pricing was practiced by the cab aggregators. The cab aggregators confirmed that while base fare could not be different for two individuals who book a cab (of the same category) at the same time, from the same location and for the same destination, total fare payable may be different from such individuals on account of discounts / promotions.

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Impact of Personalised Pricing: Personalised pricing may not necessarily lead to an adverse impact on consumer welfare or raise any competition issues, and adverse effects of personalised pricing were dependent on several other parameters being fulfilled.

Recommendations:

The Commission recommended the need to promote transparency regarding total fare in general and all its different components amongst drivers and riders. A few self-regulatory measures outlined in the report include:

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The cab aggregators to provide the various components of the total fare.

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The surge component of the total fare (along with a break-up of the total fare).

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Providing a transparent cancellation policy demarcating sharing of cancellation charges between the cab aggregator and the driver in the event a rider / consumer cancels the ride.

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Surge Pricing

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Rationale for surge-pricing: The cab aggregators explained that a surge is applicable typically on account of factors such as: (i) bad weather, (ii) festivals, (iii) end of concerts and shows, (iv) during weekends, (v) rush-hours, among others. The rationale for surge pricing is primarily to incentivise drivers to increase supply of their services.

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Information asymmetry: A disconnect between the surge being charged to riders and the amount being displayed to drivers was observed, leading to an inference that a portion of the ’surge’ was being retained by the cab aggregators themselves.

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Surge Multiplier: The Commission also observed that there was significant ambiguity surrounding the precise surge multiplier being charged to the rider.

Recommendations

The Commission recommended that cab-aggregators undertake certain measures to ensure greater transparency in: (i) the surge being charged from riders, and (ii) the quantum of surge being passed on to drivers. A few measures are illustrated below:

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Formulation of a clear and transparent policy on surge pricing to drivers and riders, providing for revenue split in times of surge between the drivers and the cab aggregators.

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Cab aggregators to ensure that surge charged for each ride is reflected appropriately in the invoice.

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Algorithmic Pricing

The Market Study revealed that there was significant ambiguity in: (i) rides being priced uniquely, (ii) differential fares being charged to riders, (iii) drivers’ perception on the surge multiplier being charged to the riders and the final surge offered to a particular driver, (iv) calculation of the surge multiplier by algorithms, (v) drivers perception surrounding self-preferencing by cab aggregators. In this regard, the following observations of the Commission are noteworthy:

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The Commission observed that the Motor Vehicle Guidelines 2020 impose a requirement on the cab aggregators to ensure transparency in their operations on aspects such as: (i) functioning of the mobile application algorithm, (ii) incentives and proportion of fare payable to the drivers, (iii) incentives given to the driver, among others. However, these are model guidelines, and final implementation rests with the state governments.

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Sensitization of technology experts about competitive law violations through internal training, conducting workshops etc. This would ensure that the technology experts are cautious whilst designing algorithms, thereby minimising inadvertent collusion.

Recommendations:

Highlighting the disparity between the actual business conduct of the cab aggregators and perceptions of the riders and drivers around the same, the Commission emphasised on the need to ensure greater transparency by the cab aggregators. In this regard, the Commission recommended that cab-aggregators undertake the following self-regulatory measures such as:

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Institution of a clear and transparent policy on data collection, its usage, sharing of such data with third parties

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Ensuring that the algorithms used by cab aggregators do not prefer cabs owned (directly or indirectly) by the cab aggregators while allocating rides.