This article has been written by Jagdish Kaisare.
Is your taxi booking platform over-charging you today as compared to yesterday? Has your taxi booking platform shocked you by the concept of ‘surge pricing’? Are the pricing strategies adopted by these taxi booking platforms just and fair? To address these questions, it is necessary to comprehend the functioning of these taxi booking platforms.
The platforms are powered by a technology interface that acts as a facilitator between the consumers and the taxi drivers. The platforms are essentially in the nature of user-friendly mobile applications that connect the consumer to the nearest taxi driver, display the details of the driver and the cab, the route map, estimated charges [along with with a ‘variation of price’ disclaimer], duration of the ride, etc. On the face of it, these platforms appear to be extremely consumer-friendly but there have been instances wherein the functioning of these platforms has left the consumer shocked and confused.
In India, the journey of these taxi booking platforms has been from predatory pricing to surge pricing and thereby resulting in an in-essence anti-competitive market structure.
The Economics of Taxi Booking Platforms
The business model adopted by the taxi booking platforms revolves around the commercial exploitation of privately-owned assets [in this case, cars] by sharing them at a particular price. Such a business model is termed as a ‘sharing economy’ or ‘peer-to-peer’ platform.
A brief operational understanding of the sharing economy business model is as follows: The taxi booking platform acts as a facilitator and aggregates the car owners, who are willing to give a taxi like ride for a price [called taxi drivers] and the consumers, who are willing to pay a price for a taxi like ride. The platform essentially connects the taxi drivers and consumers, thereby, making two ends meet and charges a commission for such service.
An important aspect to understand herein is that such a business model works beyond the ambit of regulatory intervention since there is no embargo on the sharing of personal assets. Therefore, such a business model is powered and driven by the ‘trust’ factor mainly because unlike in a traditional taxi ride wherein there is a contract for service between the consumer and the taxi driver, in a sharing economy model there is contract between the taxi driver and the platform on one hand, and the consumer and the platform on the other. However, there is no direct contract between the taxi driver and the consumer. Further, the contract between taxi drivers and the platform is that of an independent contractor, which is cost-effective and protects the platform from any tortious or contractual liability arising out of the acts of the drivers/independent contractors.
Therefore, it can be safely asserted that the sharing economy business model is a creation of the internet and is most cost-effective since it substantially cuts down transactional costs and bridges the gap between under-utilized assets and demand. It is governed by demand and supply and operates on the doctrine of equality of bargaining power, thereby making it the most sought business model for the new generation startups.
As highlighted above, the sharing economy business model raises a few regulatory concerns. The foremost concern is the legal categorization of these platforms. Are they regular/traditional taxi operators? Or do they entail a separate legal category? Although the primary legislation governing the nation’s entire transportation system including the regulation of traditional taxi licenses is the Motor Vehicles Act 1988. The Act, however, does not contain any express provision relating to technological platforms acting as intermediaries in providing transportation services.
The Act defines ‘contract carriages’ to facilitate the plying of taxis and autos to a definite set of passengers and further, for the purpose, provides for the issuance of licenses by the State Government. The licenses issued are for the sole use of the taxi driver and holds the taxi driver accountable for compliance vis-a-vis the terms of the license.
However, the Act does not envisage the role of the taxi booking platforms because of the following reasons: it expressly prohibits carpooling and permits only the owner of the license to provide the ride, thereby not accommodating any intermediary. Further, the Act also confers the power to regulate fares with the State Government, thereby eliminating the scope of price variations in a contract of carriage.
Therefore, regarding the regulatory concerns, we can safely state that the regulations do not factor in the digitized economy and only aim at regulating the traditional method of taxi business based on the principles of offer and acceptance, bilateral contract, protection of the consumer by regulations and equality of bargaining power. The lack of regulatory scope, recent digitization of the economy and the boom in e-commerce has throttled the traditional commuter market and paved the way for taxi booking platforms.
Taxi Booking Platforms and Competition Law Concerns
The taxi booking platforms were supported by deep pockets under which they simultaneously targeted the consumers by offering up to 50% reduction in fares [predatory pricing] and other incentives and also offered their drivers cash incentives based on the number of rides they completed. The primary area of concern here is that, if one platform offers incentives, the other would be forced to do the same and it would ultimately result in forcing out the local competition without deep pockets.
Further, since trust is the driving factor of taxi-booking platforms it was implied that the condition of the vehicle and the behaviour of the driver was expected to be par excellence, however, that was not the case in India. After the 2014 rape incident with a uber driver, concerns regarding safety during the ride grew rapidly. Consequently, many state governments took initiatives to regulate the taxi-booking platforms and as a result, the Lok Sabha passed the Motor Vehicle Amendment Bill 2016 to incorporate taxi aggregators within its framework.
Although the amendment addresses issues like licensing procedures, road safety, speed limits, etc., it fails to address the issues relating to the terms of the contract between the drivers and platforms and the price structure and surge pricing adopted by the platforms.
Amidst the lack of regulatory clarity, competition law plays a key role in protecting the stakeholders of the taxi market – the local competitors, the consumers, and the platform drivers since all the stakeholders of the market seem to lack bargaining power vis-a-vis the taxi booking platforms.
At this juncture, it is important to appreciate the case of Fast Track Call Cab Private Limited v M/s ANI Technologies Pvt. Ltd.
ANI Technologies is the owner of OLA Cabs. In the matter, Fast Track filed a complaint with the Competition Commission of India against ANI Technologies for allegedly violating Section 3 and 4 of the Competition Act 2002. Fast Track contended that, among other things, ANI Technologies was indulging in abuse of dominance through predatory pricing, poaching competitor’s drivers with heavy incentives, providing heavy discounts and other benefits to the consumers to capture the market and eliminate competition.
To assess the allegations, the Competition Commission of India (CCI) had to follow a procedure envisaged by law. The first step was to determine the relevant geographic and product market.
To determine the relevant geographic market, the CCI held that, since the subject matter is location specific and the complaint was filed concerning Bengaluru, the relevant geographic market was Bengaluru.
To determine the relevant product market, the CCI availed the traditional Small but Significant and Non-Transitory Increase in Price Test (SSNIP) and looked into the functional interchangeability doctrine by trying to locate different options available to commuters for travel in the city. The CCI determined that because of the peculiar characteristics of radio cabs, the commuters will not prefer any other mode of transportation and that, the relevant product market was the call cab/radio taxi market.
The next step to assess the allegations was to understand if ANI Technologies was abusing a dominant position. The CCI compared revenue earned by ANI Technologies with the money spent on promotion, and that indicated a net loss. Thus, they prima facie opined that ANI appeared to be dominant in the Call Cab/Radio Taxi market based on the growth and market share. It also seemed to be convinced that they indulged in predatory pricing by way of giving incentives and discounts to consumers. However, there appeared no conclusive evidence to establish that ANI Technologies was abusing such dominant power through predatory pricing with the intention to eliminate competition. It is worthwhile to appreciate the dissenting opinion in the case which observed that ANI Technologies being a dominant player had no reason to provide services below-average cost unless it intends to drive out or reduce competition in the relevant market.
Therefore, from the above matter, two things deserve attention. One – the classification of taxi booking platforms into a different market highlights the need for separate legislation catering to cab-aggregators or taxi booking platforms. Two – such cab-aggregators or taxi booking platforms incline to resort to predatory pricing by its access to huge financial resources and low transactional costs which a byproduct of the sharing economy business model adopted by such platforms.
Another appreciable case is that of, Meru Travel Solutions Private Limited v Uber India Systems Private Limited
In this case, the relevant product market was held to be Radio Taxi, and the relevant geographic market was held to be an individual city. Further, to assess if Uber had a dominant position in the market, CCI appreciated the evidence that OLA Cabs gave Uber a stiff competition and did not find Uber to be in a dominant position. The findings of the CCI were overturned by the Competition Appellate Tribunal (COMPAT) that disagreed with CCI’s identification of the relevant geographic market. The COMPAT was of the opinion that the distinction between two cities was artificial for the purpose of cab rides.
Therefore, it can be said that the method adopted in determining the relevant geographic market will be impacted depending upon the nature of permit granted to be cab aggregators by the 2016 Amendment to the Motor Vehicles Act.
From the above, it appears that the CCI is still conservative in its approach to determine dominance and its abuse. In my opinion, the CCI ought to regard taxi-booking platforms/cab aggregators as a peculiar economic model and further ought to dynamically interpret the provisions of the Competition Act in order to address the concerns that technological disruptions will subsequently raise. The CCI is yet to make a progressive ruling on any matter concerning taxi-booking platforms or cab aggregators. In my opinion, it is because of CCI’s conservative approach that the platforms continue to resort to the vague pricing structure and surge pricing.
It is important to understand the relationship between predatory pricing and surge pricing. The sharing economy business model in relation to taxi booking platforms has created a sort of paradoxical scenario. In the incipiency stages, the taxi-booking platforms burnt cash to offer incentives to drivers to lure them to sign-up to their platform and on the other hand, offered steep discounts and promotional offers to the consumer to avail rides via their platform. The platforms operated in this manner up until they acquired substantial market share in the radio taxi market and eliminate competition. This operational strategy has created a sort of dependency on these platforms on part of the consumers and the drivers. In order to attain sustainable growth and recoup the cash burn, these platforms are now resorting to a reduction in driver incentives and surge pricing. As a result of eliminated competitors, the drivers and the consumers have no option than to turn to these platforms. Thus, it is safe to conclude that the surge pricing strategy adopted by these platforms creates nothing but an anti-competitive structure and has to be holistically addressed by reference to ever-evolving technology and impact on the competitors and consumers.
On a parting note, it is the need of the hour for legislation envisaging the holistic regulation such as a taxi-booking platform or cab aggregators and the protection of consumer interest to be introduced.
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