Fare surges often lead to outpourings of public criticism (Sun will set on taxi trade unless drastic changes are made, Feb 11), but I feel we should not regulate or ban surge pricing.

Surge pricing relies on frequent price adjustments to match supply and demand. People understandably detest such a practice. It offends the sensibilities of non-economists that the same journey should cost a different amount from one day or hour to the next and more, invariably, when the need is most desperate.

Yet surge fares also demonstrate the elegance with which prices regulate a marketplace. When demand in an area spikes and the waiting time for a car rises, surge pricing kicks in; users requesting cars must be aware that the fare will be a multiple of the normal rate. 

As the multiple rises, the market goes to work. Higher fares ration available cars according to consumers’ willingness to pay: to richer ones, in some cases, but also to those less able to wait out the surge period or with fewer good alternatives. 

Charging those without good alternatives extra sounds like gouging, yet without surge pricing such riders would be less likely to get a ride at all.

Surge pricing also boosts supply. The extra money is shared with drivers, who therefore have an incentive to travel to areas with high demand to help relieve the crunch. The possibility of earning a surge fare may also strengthen drivers’ incentive to anticipate and respond pre-emptively to high demand. 

Surge pricing can also improve taxi markets as it may encourage the number of taxis to vary with demand, with the market getting bigger during peak hours.

Lau Wai Kwok