The myth of Predatory Pricing
The myth of Predatory Pricing

Socialists and anti-free market status quoists have long trotted out, with malicious intent, the myth of “Predatory Pricing”. The recent victim of such policies is Uber – a cab aggregation service.

A petition filed by Delhi Commercial Driver Union seeks:

  • Setting up a committee to examine if part-time drivers should be classified as employees of Uber and consequently whether protections and regulations of labor laws should be applicable to it.
  • Monitor and “redress” grievances related to working conditions, wages, compensation in case of fatal and non-fatal accidents. The present writ petition also prays for a fixed amount to be given as compensation to the drivers who are victims of road accidents.
  • The Petition claims to represent over 150,000 drivers operating in the National Capital Territory, and alleges that the drivers are being subjected to deplorable working and pay conditions, due to “arbitrary deductions in their payments without even giving them a chance to respond.
  • The petition mentions “Grievances” of drivers such as:
    1. No freedom to cancel booking.
    2. Arbitrary reductions in wages
    3. Change in fares on daily basis without prior notice.
  • Petition mentions that taxi aggregator Uber “captured market” by “giving high wage initially in order to capture market share and then subsequently reduced it so that a person cannot even pay his debts is violation of principles enshrined in Articles 39, 42 and 43 of our Constitution.
  • The Petition mentions that the part-time drivers are “workman” as defined under Section 2(s) of the Industrial Disputes Act, 1947, and hence, a relationship (employer-employee) exists between them and the cab aggregators.
  • The petition mentions that in case drivers employed by taxi aggregators, suffer injury then taxi aggregators be made to pay compensation to driver and in case the driver dies – during the course of employment, provide employment to one family member of the driver.

The recommendations of this committee will then be issued as guidelines to be adhered to be cab aggregation service providers like Uber and Ola.

What is amusing is the readiness of court to entertain such malicious “Petitions”. Such “camaraderie” is a mask to hurt competition. It goes without saying that this petition is filed by groups with “vested interests” who profess to champion cause of “drivers and economically weaker section”. So much for the needless drama. The petition manufactures lies by mentioning that driver has no option in sequence of events of booking and that “The driver has no option but to accept a “lead” without even knowing the destination.” The truth is that all cab aggregation services use geo-location to pinpoint the location of customer. Communication between customer and driver is not “breach of contract”.

Further, the petitioner, using salvo of emotionally charged language tries to justify why such “market intervention” is necessary to “protect drivers”. The reality is that these vested groups masquerading as “comrades” are in fact here to hurt the drivers and reduce their job prospects. Taxi aggregation is an optimized technical solution. Before such services were available, one can remember and weep to memories of begging to taxi drivers in moments of need, as they refuse to budge and complete their scheduled afternoon nap. Not only these platforms have empowered customers, they have brought in much needed transparency. The petition laments that cab fare is predetermined and that driver has no say in it. The petitioner fails to understand that that is not a problem. That is the point. Moreover, the fluctuation in day to day prices is based on demand vs. availability of cab drivers.

By artificially setting the prices which is not dependent on market factors, the government will not only destroy businesses but will create unemployment among drivers.

Incompetent players lament that giants like Uber or Amazon engage in “Predatory Pricing” and contest that their interests should be protected. They assume that by some godly blessing they were given birthright to be a taxi-aggregator or e-Commerce player and that their interest must be “protected” by government. Such slouches.

Some groups among these unions are planning to launch their own app-based taxi-aggregation service. The malicious intent of these “comrades” thus become clear. They do not care about drivers. They want to make it costly for competitive players like Uber to hire drivers by using State machinery and pushing regulations.

Most people see pricing strategy as something detached from market mechanism. It’s not. It’s not the case that some CEO is rolling a dice in his posh office and decide prices for the day. Absolutely not. Prices are directly linked to demand and supply and other market factors. In an unconsolidated industry like taxi-aggregation – with more competition, the prices will further fall. That drivers have joined these con men against their own interest show that how important Economics 101 is and why even seemingly intelligent people – working in industry for years or even decades fail to understand fundamental principles that drive markets and overall economy of a country.

Predatory pricing theory persists because well-placed individuals and organizations that benefit from accusing others of engaging in predatory pricing will use their resources to keep the theory alive.

When “Price” itself is dynamic and not a constant, how can one determine “Predatory Price”? There is no “Predatory Price” of anything. There is only “Price”. Whether a company makes profit or loss depends on their pricing strategy. Consumer use “Price Discrimination” to decide which product to buy. The roots of “Predatory Price” lie in socialist protectionist theory that espouse “market failure”. “Predatory Prices” are like god. They do not exist, simply because “Price” by nature is subjective, not objective and it’s variable, not a constant in time-space. To prove that “Price” of a product is “Below Explicit Cost” is a futile exercise.

It is thus clear that such vested interests will use every tool at their disposal to push socialist controls and regulations against open competition that hurts their interest – from emotional machinations about “Disadvantaged section” to espousing unicorn of “Predatory Pricing”.

One can hope that court dismisses such petitions and thwart attempts of establishing monopoly masquerading as “solidarity and camaraderie” with drivers.

 

 

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