Who fixes fares? Regulators or Consumers?

A discussion the other day had someone tell me the recent auto fare hike in Bangalore was justified. Why? Because, according to him, auto drivers too deserved enhanced earnings from their services.

Fair? On the face of it, yes, but beneath, that's a pack of lies. Sure, auto-drivers should be allowed to raise fares. In fact any seller should be able to raise prices of whatever it is that he sells. But then the acceptability of that price has to be determined by a consumer. By a consumer who's been given the opportunity of choices. The existence of those 'choices' would then require that the market be unregulated when it comes to 'supply' of services. Meaning anyone, wanting to offer transportation services to buying consumers must be allowed to do so.

But then again, that isn't the kind of market we operate in. Meaning, the supply side is regulated. Which leaves consumers at the mercy of the seller. In other words at the mercy of the Auto-guys. This therefore requires there be regulation. Of prices. That this is still a flawed economic model shouldn't be lost on anyone. After all, the misery of regulation is all around us. Concealed within the of garb 'equity', the government acting as a regulator has only made it worse for consumers.

But despite the mess, I believe there's still hope. In the 'correcting' mechanisms inherent within the market. If the Auto drivers plump for raise in fares, consumers have a choice to switch. To taking other means of transport, to even walking when they can. My hope is, they do. Guess what happens then? Prices fall down.

Though I admit, its a long shot.

And oh, about my friend who thinks its OK to raise prices, he is welcome to pay through his nose for a ride. Who's stopping him? Currently the minimum fare at Bangalore for a ride in an Auto stands at Rs. 17. Maybe my friend, the bleeding heart liberal should pay fifty. Maybe a hundred.

Will he? Long shot again.


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