Friday, July 06, 2007

Riding a Cab (and pay old fare) in Jakarta

If you ever traveled with a cab in Jakarta, you would notice that there are cabs with old (cheaper) fare and ones with new fare. Approximately, the former are about 30 percent cheaper.

The major cab company in Jakarta (that claims to have more than 50 percent of cabs market share in the city, according to their internal magazine I read while stuck in a usual traffic jam) belongs to the more expensive group. They adopt the new fare is due to the fact, again they claim, that higher fare does not bring down the number of passenger significantly. In economics jargon, the demand elasticity is low.

The two types of fare is actually quite new. It came into effect when the cab firms did not agree on increasing fare following the fuel price hike. Here, the government regulates the cab fare, based on input from the firms association (Yes, you read it right).

I actually like this kind of dual fare arrangement. In fact, I want more than two types of fares. It leaves me, as a cab consumer, a range of choice. If you have the money, or your company pays it, you can take the premium. Otherwise, when money is short, you can take the riskier and, perhaps, less convenient service.

Unlike public bus or economy class train --the mighty KRL--, I don’t see any reason why government should set the minimum fare for more luxurious cab service. Thus I would love to see those cab firms to disagree to each other –in other words, becoming a failing cartel –.

Without price cap, you may want to say that the major cab firm will drive the fare up steeply, and leave us worse off. I bet it won’t be the case. They can try to do so, but competition will bring other cab firms with more or less similar quality but lower fare to come in.

This might sound counterintuitive for some of café visitors that if you hate cabs that charge you high fare, what you can do is not trying to regulate price (to hold the price increase through government regulation), but to free the market.

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