Commentary: Ride-hailing apps – consumers have to ‘suck it up’ as larger issues are tackled

SINGAPORE: Users of ride-hailing app Grab are lamenting recent changes to its reward system.

Accumulating points and redeeming cash rebates was a breeze, but since the Grab-Uber merger, it has clearly become more difficult to do so.

Earlier this month, the Competition and Consumer Commission of Singapore (CCCS) too said the merger deal has led to a “substantial lessening of competition”, made it harder for new competitors to enter the market, and resulted in higher prices.  

Indeed, the current situation has given pause to players such as Go-Jek who are reportedly reassessing the risks associated with entering this market.

Thankfully the situation hasn’t deterred other players from breaking onto the scene. 

MVL has just entered the market with its app, TADA. Among its selling points is that it will not collect commission fees from drivers using its platform, keep fares competitive, and not levy cancellation penalties on riders.

This might give Grab a run for its money.

However, some experts have pointed out that whether or not the Grab-Uber merger had taken place, prices would have increased. The low prices we had been seeing were merely unsustainable discounts the companies were offering in an effort to maximise their market share.

It remains to be seen whether new players’ models are sustainable enough to ensure the longevity of their initial competitive rates.

CONSUMERS HAVE CHOICES

Soon after the Grab-Uber merger was announced, Nitin Pangarkar, Associate Professor in the Department of Strategy and Policy at the National University of Singapore Business School said that “we should not be unduly alarmed about the loss of consumer welfare because of high prices for the simple reason that there is a cap on how much the ‘new Grab’ can raise prices, especially in Singapore”.

He pointed out that “Singapore has a good public transport system and a taxi system that doesn’t charge high fares”.

READ: Flawed to think Grab-Uber merger will lead to monopolistic prices, Nitin Pangarkar’s commentary

Indeed, even though Grab is the largest player in the ride-hailing market today, consumers must remember they still have choices.

Companies that operate in this sector also need to bear this in mind when increasing prices.

Complacency clearly will not serve them in this market for long.

TEMPERING UNSUSTAINABLE BUSINESS PRACTICES

Some observers have remarked that tech start-ups in the landscape could do more to temper their aggressive drive to attain market share through low prices.

What we have seen transpire in Singapore and in China in the case of Didi Chuxing, clearly shows that when the focus turns to profitability, mergers may even become the norm.

But whatever happened to building a sustainable business model from the get-go?

However as things stand today, with any new player, consumers would do well to know that low prices and generous rewards are likely to be transitory.

The vibrancy of free market economics would constitute quick entries, even exits and price adjustments. as all these occur.

With higher prices, artificially-induced demand fuelled by low prices would fall and market shakeouts might then lead to an equilibrium.

READ: For explosive growth, look to these two models of business, a commentary

READ: How oBike, Grab-Uber merger were managed shows we haven’t gotten disruption right, a commentary

RESTORING CONTESTABILITY, BUT TO WHAT END?

The CCCS has proposed remedies to restore market contestability in the ride-hailing landscape.

Among them, the removal of exclusivity obligations, lock-in periods and/or termination fees on all drivers who drive on Grab’s ride-hailing platform and the removal of Grab’s exclusivity arrangements with any taxi or private-hire car fleet so as to increase choices for drivers and riders.

Indeed, measures need to be in place to prevent existing players from making it arduous to sign up with new market entrants.

New entrants would do better to step in with more creative business models that also take into account long-term sustainability.

But while intense competition in the market might be good for consumers in the short-term, in the long-term, it leads to a less healthy transport ecosystem in that it is likely to thwart Singapore’s car-lite aims.

A study by Boston’s Northeastern University shows that since private-hire services were introduced in Boston, commuters who used to walk, cycle or use public transport are opting for cheap private-hire car rides instead.

In Singapore, as the bus and MRT systems continue to be improved, is encouraging the use of ride-hailing services really the answer?

As regulators step in to ensure market contestability, the promotion of intense competition perhaps needs to be moderated, as do the expectations of commuters.

In the meantime, we may have to adopt an attitude of “enjoy it while it lasts” when new entrants unleash generous discounts and “suck it up” when prices increase as players transition to more sustainable models or exit.

Bharati Jagdish is the host of Channel NewsAsia Digital News’ hard-hitting On The Record, a weekly interview with thought leaders across Singapore, and The Pulse, Channel NewsAsia’s weekly podcast that discusses the hottest issues of the week.