The Ethics of Surge Pricing and other Profit Driven Business Strategies by Aggregators

Most of us who live in urban areas and have used the app-based ride-hailing cabs such as Ola and Uber would have come across the term Surge Pricing wherein the riders are asked to shell out more money and pay more for the rides during heavy rains, floods, terror strikes, and other emergencies.

The reasoning behind this strategy that is offered by the Cab Aggregators is that this surge pricing would allow them to meet the spike in demand during such times with the provision of “incentives” to the drivers to keep riding.

Indeed, this can be thought of as a very valid and reasonable business strategy except that in such circumstances, the humanistic impulse and the compassionate capitalistic strategies should be the norm.

For instance, if you are a rider and looking to get home as quickly and safely as possible during emergencies, the last thing you would want is to get “fleeced” by the App firms. On the other hand, it can also be argued that for riders, the priority should be the former (i.e. getting home safely) and hence, as long as there are cabs willing to take them to their destinations, they ought to pay a “premium”.

Indeed, it can also be said that drivers too need the extra money to undertake risky rides and drives, as well as they, must also think about their safety and hence, Surge Pricing is accepted as the costs that one incurs for such conveniences.

This is the classic clash between the market and the morals wherein the former states that the efficient market systems always serve the consumers by arbitrage between supply and demand whereas the latter argues that in some cases, profit should not be the only criterion by which firms operate.

Further, the consumers often allege that Surge Pricing and other strategies that the App based firms employ are contrary to their vision and mission that specify serving consumers in the most efficient and reliable way.

Thus, firms such as Uber and Ola argue that while they are serving society, they are also in the “business” of serving the society which means that the operative term here is business in the sense that they exist to make profits.

It is clear that there are no easy answers as well as any possible solutions to this debate as sometimes, the capitalistic market determined and market-oriented systems do tread on areas that are morally questionable.

Indeed, this is the classic case of the debate between businesses and their social responsibility that has been going for at least three decades or so.

As the late Chicago school economist and cheerleader of Capitalism famously stated, “The Responsibility and the business of business is to be in business” and hence, profits are the sole criterion by which firms must be judged.

Further, he and others also argued that the efficient market system guided by an “invisible hand” always produces the most optimal outcomes wherein the profit-driven imperative is also good for the consumers in the long run.

Following this argument, firms such as Uber, and other App aggregators point to the themes that were highlighted earlier about incentives and other carrots to provide drivers with the necessary motivation during emergencies.

In addition, they also point to the fact that they are at least stating upfront about Surge Pricing and other strategies whereas in earlier years, the cabs or for that any business simply closed their operations during emergencies leaving no choice at all for the consumers.

In other words, they contend that they are being transparent which anyway the whole foundation of the Digital Economy is and hence, their concerns must be taken into account as well.

Having said that, the activists and consumer rights advocates allege that the Digital Economy was supposed to empower and enable consumers to make better decisions and consumer choices and hence, if there is no difference from the naked profiteering that characterized earlier eras with the present system, then the claim that the Digital Economy would benefit the consumers in all bunkum.

Further, the fact that not all the extra amount or the “Surge” that consumers pay goes to the drivers means that this is a new form of exploitation of both the consumers and the employees.

They are also part-time and hence, precarious labor as the term used to describe the Gig Economy workers indicates. Hence, while one can go on and on about the Ethics of Surge Pricing, the fact remains is that it is high time the regulators and the Governmental agencies came up with suitable means of regulating the Gig Economy and the Digital Economy.

This acute need for clarity is felt in those legal disputes that are taking place worldwide about how the Digital Economy firms must be regulated.

Lastly, it is our view that unless there is more clarity on the kinds of business strategies that can be employed by the New Economy firms, we would still be using traditional and old standards of regulation and yardsticks to measure them that are rooted in the previous eras.

To conclude, there is an urgent need to resolve the ethical and legal issues surrounding Surge Pricing and other such strategies that are employed by the Digital Economy firms and in addition, there is also a need to understand whether the Digital Economy is driven solely by profit as earlier models of economy or is it any different from the past models.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.