An attempt at exploring the Economics behind E Rickshaw Service

Blog By -Aditya Diwakar

E Rickshaw is a cheap and convenient mode of transportation. It operates in various parts of the country and has become highly popular as a means of local locomotion. Our attempt in this article has been to explore the principles of economics working behind the E Rickshaw services. For this purpose, I have carefully observed the E Rickshaw service of Malkaganj and Kamla Nagar Area of New Delhi. The features that I have observed for this market are as follows

have observed for this market are as follows

  1. Homogeneous Product – All the E Rickshaws in the market have essentially the same physical properties – the capacity of 4 passengers and one driver (an additional passenger may at times sit adjacent to the driver). The quality of seats is almost similar in all the e rickshaws as well. The minor difference of seat quality seems to be insignificant to the customer.
  2. Homogeneous Service – The e rickshaws offer the same service of picking you up at a place of your convince on the route they run on and dropping you to any place in their route. 
  3. Same Price – The price charged by e rickshaws is also fixed. Hence, all the e rickshaws charge the same price for their service.
  4. A large Number Of Service Providers and Receivers- There are a large number of E Rickshaw and a larger number of customers in the market; this ensures that no single customer or driver is in a position to change the price.

The various features that are present in the E Rickshaw market seem to resemble that of perfect completion in the real world. Now as E Rickshaws are an example of perfect competition then it follows that the invisible hand of Adam Smith will ensure that the market operates efficiently and there is no need for a regulating body. The maximum legal capacity of an E Rickshaw is of 4 passengers, so rationally an e rickshaw driver will be willing to move to its destination when he has got 4 passengers. The first question that we must ask is       

How does he get those 4 passengers that put him to the optimal position at which he is willing to move?

When a passenger comes to avail the service of an e rickshaw, the different drivers try to convince him/her to sit in their e rickshaw. A passenger may sit randomly in any of the several e rickshaws. Now, this behavior of the customer leads to a significant problem. Suppose there are 40 customers who want to go from position A to B and there are N numbers of e rickshaws. If the welfare of the society has to be maximized then these 40 customers must be accommodated in 10 (4 passengers in each) e rickshaws. With the drivers competing for each passenger, there is absolutely no certainty that these 40 passengers would be accommodated in exactly 10 e rickshaws. If the number of e rickshaws used for transportation exceeds 10 then this means some of the e rickshaws are not operating at their optimal level.

From the viewpoint of the society, it means that there is wastage of resources.The required service of moving 40 people from A to B that should have ideally been done by 10 E-Rickshaws is being done my more than this minimum number. Hence, the e rickshaw market left on its own fails to reach the optimum level for the society.

What prevents the E –Rickshaw Market to reach the optimal level?

If one looks closely it is evident that the hindrance to reaching the optimum level is caused due to competition. Since each driver is charging the same and providing identical service a rational consumer is free to choose any one of the e rickshaws. Thus, giving rise to the problem discussed above.

One may argue that the optimum level is not reached because of lack of demand i.e. only 40 passengers.

This argument is a good one to start with 40 passengers is too small a number for such a large number of e rickshaws but there are two reasons that seem to take care of this argument

First, I am considering 40 passengers only for a given period of time because not all the passengers would be demanding the service of e rickshaws simultaneously.

Second, if I assume in response to lower demand supply is also reduced and there are only 15 e rickshaws in service now. Even now there is no guarantee that these 40 passengers would be accommodated in 10 e rickshaws pertaining to the optimal level of society.

So, the final question that I must ask in the article is

Do we need a visible hand (regulatory body) in the e rickshaw market to ensure that they operate at the optimum level?

With this question, I end this article here and wait eagerly to know your point of view.

2 thoughts on “An attempt at exploring the Economics behind E Rickshaw Service”

  1. Currently if there are more e rickshaws plying than required then they will certainly take lesser rounds because of time spent on waiting for 4 passengers. In this case also, their marginal revenue > marginal cost and they will be happy with the earning. If unhappy, they will readily leave the market.
    A regulatory body MAY check the surplus or shortages in the market but given the complexity of such markets and type of people earning there will certainly be uncertainties about success of policies of the visible hand.

    This is a good initiative Bhaiya. Glad to find such an interactive platform .

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