By Benedict Weerasena, Research Director of Bait Al Amanah
Picture Source: Vulcan Post
Recently, e-hailing service fares were reported to have increased up to 400% during peak hours, triggering dissatisfaction among passengers and consumer groups. The Minister of Transport issued a statement in response, stating that the ministry would not hesitate to suspend or revoke the licences of e-hailing companies that violate the 200% surcharge limit imposed by the government.
First and foremost, it is important to understand the economic factors underlying the price spike. The recent surge in fares is due to high demand and existing supply challenges, especially during peak hours. As one of the most basic economic laws, the law of demand and the law of supply interact to determine the market price of these e-hailing services.
Market forces play an important role in this industry. For example, higher prices nudge consumers to use alternative services or other public transportation options, lowering the overall demand for e-hailing services. At the same time, higher prices incentivize more drivers to brave the worsening traffic jams during the rush hour, filling the imbalance. Increased regulations on prices such as setting a ceiling price will worsen the situation as fewer e-hailing drivers are willing to drive during peak hours with the low returns. In other words, interfering in the gig economy through harsher regulations will stifle efficiency and result in unintended consequences.
Instead of price controls, the government should focus on formulating an institutional framework which minimizes entry barriers. Lower barriers to entry for new e-hailing operators will encourage new players, ensuring healthy competition in the long run. Similarly, the government should reduce barriers to entry for e-hailing drivers, so that new drivers can be onboarded at a quicker pace to fill the current gap.
Beyond this, it is highly essential for policy-makers to enhance and expand the first-mile and last-mile connectivity of urban public transportation. This will create more reasonable options for riders to get to train stations.
Most importantly, it is extremely crucial to improve the quality and efficiency of public transportation as a viable and reliable alternative. Frequent breakdowns, delays and inefficiencies will leave consumers no choice but to rely on the more reliable e-hailing services. For example, the LRT Kelana Jaya line’s repeated disruptions during peak hours leave many passengers stranded, with some having to resort to paying the high surcharge of e-hailing services to get to their destination in time.
*Excerpts of this short article were published in an interview with Free Malaysia Today .