Lessons in competition from a taxi driver in Goa - The Daily Reckoning
The Daily Reckoning by Vivek Kaul
On This Day - 21 July 2015
PRINTER FRIENDLY | ARCHIVES
Lessons in competition from a taxi driver in Goa A  A  A

- By Vivek Kaul

Vivek Kaul
If I were to ask you, what is common between Bangalore and Goa, what would you say? Actually, I could even ask you what is common between Delhi and Goa? Or for that matter Chennai and Goa? And to some extent Mumbai and Goa?

If you are the kind who goes to Goa regularly, you would know that the taxi drivers in Goa are a pain to deal with. They remind you of the auto-rickshaw drivers of Bangalore, and Delhi, and Chennai, and to some extent Mumbai, who are an equal pain to deal with and always want to be paid more. These guys would rather sit and idle away their time than take people from one place to another, which is what they are supposed to do.

Sometimes I wonder why are these guys in the business of transportation in the first place, given that they don't want to go anywhere?

But jokes apart, why is this the case? Why do the autorickshaw drivers more or less all over the country, and the taxi drivers of Goa, behave in the way they do? The reason they behave in a similar way is because they know that they have no competition. If some competition were to come along, their obnoxious behaviour is likely to improve. While nothing works better than some completion, things are not as straightforward as that.

--- Advertisement ---
We Do All The Hard Work For You...

In the last 7-plus years, our subscribers have made exciting returns from several small cap stocks.

We are talking about returns like 250% in 2 years, 110% in 2 years 4 months, 288% in 2 years and 5 months, 124% in just about 7 months and more...

And there's a big reason why they have been able to make such returns almost effortlessly.

It's because we spend countless hours researching small caps, checking out their financial statements, and at times meeting up with them one on one to get an even deeper understanding of the business.

That's why we believe we are able to identify the handful of high-potential small caps among thousands that exist... enabling our subscribers to benefit from almost effortless small cap investing.

So if you also wish to benefit from small caps, and we know you do, please click here for full details...

------------------------------

On a recent visit to Goa, I found the taxi driver (who also owned the cab) driving me around to be slightly worried about his future as an owner of two taxis. As the conversation went along I found that he was worried about taxi operators like Ola, Uber etc., entering the state.

They would offer a significantly lower price than what the taxi operators currently charge and in the process end up driving them out of business. "We are thinking of doing a chakka jaam against this," the driver told me. "Otherwise thousands of taxi owners will be out of work."

There is a lot that this statement tells us about how incumbents in a particular line of business behave when they are about to face new competition which is likely to make things more difficult for them. Along the lines of the taxi-driver who drove me around Goa, the drivers of kaali-peeli taxis and the autorickhaws of Mumbai are also a worried lot. Recently there was a strike to protest against the new kids on the block (read Uber/Ola etc.).

Further, conversations I have had with many kaali-peeli taxi drivers in Mumbai tell me that their daily earnings are down. A couple of them told me that their earnings are down by around 25%.

As Raghuram Rajan, the current governor of the Reserve Bank of India wrote in Saving Capitalism from the Capitalists (co-authored with Luigi Zingales): "Throughout its history, the free market system has been held back, not so much by its own economic deficiencies as Marxists would have it, but because of its reliance on political goodwill for its infrastructure. The threat primarily comes from...incumbents, those who already have an established position in the marketplace. The identity of the most dangerous incumbents depends on the country and the time period, but the part has been played at various times by the landed aristocracy, the owners and managers of large corporations, their financiers, and organised labour."

In the case of Goa these incumbents are the existing taxi owners and drivers, who are organised. They have had an easy ride up until now. So is the case with autorickshaw drivers in cities all across in India. With almost no competition, they have been fleecing consumers for years now.

The trouble is that in all this no one thinks about the end consumer. In case of Goa, the end consumers are the huge number of tourists who visit the state every year. Data from the Goa Tourism department shows that in 2014 a total number of 4.05 million tourists came to Goa. Of this around 5.13 lakh tourists came from abroad. The remaining 3.54 million tourists were Indians.

Hence, if some competition were to be introduced in the taxi-cab space in Goa, it would benefit tourists who come to the state tremendously. They would be able to get cabs to go around at reasonable rates and wouldn't feel fleeced every time they decide to use a cab. Their holiday would be a much more pleasurable experience than it currently is. This is true about other Indian cities where people are dependent on auto-rickshaws for transport.

The trouble here is that unlike the few thousand odd taxi owners, the 4.05 million tourists do not have an organised voice. And given that there is no way they can put across their point of view. Further, most of them visit the state just as tourists and do not live there. Hence, even if they had a voice, there would be no commitment to the cause.

This brings me to Bangalore, Delhi and Chennai (actually Delhi has improved a bit in the last few years). The cities needs to stop being held to ransom by autorickshaw drivers. The citizens deserve better.

Given this, it is time to move to the likes of Ola and Uber, lock, stock and barrel. At least, till their prices are competitive enough. These companies if they have to survive will eventually end up raising rates, and we will end up having another headache on our hands. Nevertheless, until then the autorickshaw drivers and owners need to be put in their place.

Also, the government needs to think about the consumers, who do not have voice, as well. As Rajan and Zingales put it: "The most effective way to reduce the power of incumbents to affect legislation is to keep domestic markets open to international competition...Openness creates competitions from outsiders-outsiders that incumbents cannot control through political means."

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

Disclaimer:
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Get The Daily Reckoning directly
in your mail box.
Just enter your e-mail address » 

Read our Privacy Policy and Terms Of Use.

Equitymaster requests your view! Post a comment on "Lessons in competition from a taxi driver in Goa". Click here!

7 Responses to "Lessons in competition from a taxi driver in Goa"

Rajendran

Jul 26, 2015

Quite true. Recently I had to visit Pondicherry to seek admission for my son in Pondicherry Engineering college.I asked an auto driver how much it will take to drop me to this place. He said Rs300. I asked him why it's so, he said it is almost 16 kms from the city. I started arguing with him and told him that it's only 12 kms from the city and not 16 kms. He immediately reduced the rate to Rs250! These people take advantage of the situation and also the ignorance of the traveller about the distance to travel

Like 

Ashok Golas

Jul 26, 2015

Uber & Ola will go the way of other operators-they will raise the fares once they get a toehold. They also have dynamic pricing - does this strike a chord? Is it not what an auto wall does when he qoutes an outrageous fare? But I will go along with this rather than tolerate obnoxious conduct of radio-taxi operators Easy, Meru, Mega etc. These guys take the booking and just half an hour before the scheduled time, regret & not provide a cab. It may be ok in day time but what if I have to take a flight at 04:00 AM - where will locate an alternate transsport? So taxi operators/autowallahs are better - at least they do not ditch you.

Like 

Mohan Shenoy

Jul 22, 2015

The Analysis is bang on. Before advent of Metro Cash and Carry stores in Bangalore, the office requisites stores used to charge MRP for the item even for bulk purchases by offices and factories or a rate marginally lower than m
MRP. After Metro the scenario has changed. These stores are also selling items matching Metro prices, which is a good percentage lower than the MRP. At least in this instance, the pattern has not changed over the years. It still remains the same confirming the observations in the above article. Competition is the key for vendors or service providers fleecing the consumers.

Like 

Dr G L Moondra

Jul 22, 2015

I have come to know that all these taxi companies are running in heavy losses. so are the E commerce companies. They are surviving because the banks and others are giving them loans and public is investing in them. Some day they will have to increase their charges or fold up. But by that time they will kill the auto riksha drivers and taxi drivers and small retailers.In either case it is the people, they be may be users or may be consumers or investors will suffer. The managers or promoters will disappear with the loot of people's money. Will you consider this scenario and comment. Dr. G L Moondra

Like 

sarat palat

Jul 21, 2015

Dear Mr. Vivek,

Nice article.

One of the reason I take my family abroad for holidays is this. The cabs and autos are waiting for a chance to squeeze the tourists. India needs to go a long way to tap the true potential of tourism.

Like (1)

Pratapa

Jul 21, 2015

Though the problem of exploitation by the incumbents is true everywhere, the solution you offer is definitely not appropriate. Because such a solution ends up with the consumers being exploited by the new incumbents after eliminating the old incumbents, immaterial whether the incumbents are locals or foreigners. True solution is to find a suitable organization of consumers to facilitate a proper balance.

Like (1)

Vishwanath Ketkar

Jul 21, 2015

Very well said.
I think internet may play a role in uniting the consumers.

Like (1)
  
Equitymaster requests your view! Post a comment on "Lessons in competition from a taxi driver in Goa". Click here!

Recent Articles:
Trump Takes a Beating
August 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Which Gods Will Bring Down the US Empire?
August 17, 2017
Mr Trump is in the White House and the gods are in their heavens; what's not to like?
Will They Haul Off Trump's Statue, Too?
August 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
Farm Loan Waivers: Why Bad Economics Makes for Good Politics
August 14, 2017
It is because the negative effects of the waivers aren't clearly visible.