What is surge pricing?
Surge pricing refers to the hike in cab fares with respect to demand. It just works like the law of demand and supply. When there is more demand for a particular product, the company will increase its price to make a higher profit. In case of cabs, if the number of people requesting cabs is more than the number of cabs available in the city, the price will automatically be increased.
The app will inform commuters about the surge price before the trip. If you are in a hurry, you can use the costlier ride or you can wait until the price comes down.
How does surge pricing work for cab aggregation apps?
The surge price is not manually fixed. Cab aggregators create algorithms that calculate the number of ride requests at a given point in time and balance it with the number of cabs available.
Higher the demand, higher the price. In India, the surge price is 3 to 4 times higher than the base fare.
During peak hours, drivers get higher fares and a portion of this goes to cab aggregators in the form of commissions.
How are prices calculated at peak hours?
The mechanism used to calculate surge prices is just like airline ticket prices. The airfares drop or increase, closer to travel dates and also depending on occupancy. Cab aggregators use their own software and algorithms, to calculate demand and supply and this is dynamic.
The Delhi government is preparing a city taxi scheme, which might include fixing fare meters to cabs operated through aggregator services, to prevent surge pricing. The meters will disclose to commuters, whether they have been charged more than the maximum fare. In case the passenger has been overcharged, he can lodge a complaint with the transport department.
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