Incredible stupidity in taxi marketplaces

So it’s nearly a week since Uber and Ola drivers in Bangalore went on strike, and there’s no sign of it (the strike) ending. The longer the strike goes on for, the more incredibly stupid all parties involve look.

The blame for the strike should first fall on Uber and Ola, who in some hare-brained madness, forgot that running a platform means that both sides of the market are customers and need to be taken care of. They took good care of passengers, providing discounts and growing their market, but rather quickly pulled the plug on drivers, and there is no surprise that drivers are a rather pissed off lot.

The root cause of driver dissatisfaction has been falling bonus payments, and consequently, incomes. This is a result of Uber and Ola providing too great a subsidy during the time they built up the market.

I don’t fault them for providing those bonuses – when you are building a two-sided market, you need to subsidise one side to solve the chicken-and-egg problem. Where I have the problem is with the extent of bonuses, which gave drivers an income far in excess of what they could make in steady state. This meant that as the market approached steady state and incentives were withdrawn, once side of the market started getting pissed off, undermining the market (Disclosure: I’d once proposed to Ola that they hire me to help them with pricing and incentive structuring. the conversation didn’t go too far).

With Uber and Ola having done their stupid things, the next round has gone to the drivers. In a misguided attempt that a long strike will help them get better deals from the platforms, they are prolonging the strike. They’ve even ransacked Uber’s offices, and gone to the government for help.

What they don’t realise is that having invested what they have in their cars to drive on these marketplaces, their success is inextricably tied to the success of the marketplaces. And the more the jeopardise the marketplaces, the less their incomes in future.

A long strike reduces market size on two counts – it gives people time to adjust to the absence of service and get adjusted to alternate arrangements, and it decreases the reliability of the marketplaces in the eyes of the passengers. Thus, the longer and more frequent the strikers by the drivers, the less that passengers will look to use these services in the future.

A strike can work when the striking employees are protected by some form of labour laws, and there is no way ahead for their employers apart from a negotiated settlement. In case of a marketplace, the platform has absolutely no obligation to the drivers, and Uber and Ola can simply do what Uber and Lyft did in Austin, TX – pack up and move on. And if they do that in Bangalore, the drivers with their shiny new cars will be significantly worse off than they were before the strike.

The other act of stupidity on the drivers’ part has been to involve the government, which, as expected, has responded in a nandelliDLi (“where do I keep mine?”) fashion. The recent ban on shared rides (UberPool/OlaShare) came after a regulator read the rulebook after the last strike by the drivers. Given the complex economics of platform markets, any further regulation can only hurt the drivers.

All in all, the drivers’ stupidity can be traced back to not understanding platform markets, and protesting the way protests used to be done in highly unionised industries. Drivers, whose main skill is in driving cars, cannot be faulted so much for not understanding platform markets. Uber and Ola, on the other hand, have no such excuse!

Maruti Worker’s Stupidity

I just read a long article in today’s Business Standard (how I used to miss the paper until I resubscribed to it last week!) about the ongoing labour struggles at the Maruti Suzuki factory in Manesar. So the workers there want to form a new union, and allow a whopping 33% of the new union’s members to come from outside the factory. And the management is understandably not accepting it.

That workers need a union is understandable. That the Manesar unit wants its own union disjoint from that in Gurgaon is understandable. But a third of its members from outside? What is the average worker in the factory who is supporting this new demand even thinking? How the hell is such a union going to represent him in any way?

Some simple arithmetic. Considering that the “outside third” is going to come from the CPI/AITUC, it can be assumed that they’ll vote in one bloc. So to get something passed, they need a further 1/6 of the total votes in the union. Which amounts to a fourth of the actual workers in the union. So, as long as something is supported by this “outside bloc”, it takes the support of only a fourth, a measly one fourth, of the “real members” to go through.

I understand that the “worker leaders” who are championing this ongoing strike will have some incentives in bringing in AITUC/CPI. But what’s in it for the average worker? If he were to think rationally, this new proposed union makes absolutely no sense for him. I guess (and hope) that the Maruti management knows this, that it is not in the interest of the average worker to join this union. And I hope they’re somehow using this fact in their ongoing negotiations.

Will be fun if the guys who tried to consolidate their own power by bringing in outside representation into the union get shafted.