The smart new world of Über-efficiency

How often does Economics 101 yield a new business idea? Often enough. Or so one would guess. After all, there is a lot being hurled off launch pads these days, which suggests supply is actively being worked out in novel ways to satisfy and/or stir up demand for something or the other. So far, so expected. This is precisely what the hurly-burly of a free market is meant to be about, especially one that’s fast emerging.

Let’s look at cyberspace.

As India’s smartphone count zips past 120 million, myriad internet apps are all ajostle to squeeze onto touchscreens, and since this space is about as ‘free’ as it gets, perhaps classical market theory has a fair chance of holding good here. On paper, it’s efficiency that makes a market tick, and what underpins an efficient market is this thing called the ‘price mechanism’. This is a fancy term for human motives that push sellers and buyers to strike a sort of bilateral deal that balances both sides. And the internet, as it turns out, is a marvellous enabler of exactly that.

Internet bazaars, of course, are legion. What is far more rivetting is the drama that ensues when hot new apps show up in sedate old markets to rejig the way prices move. This is usually done nowadays by getting an invisible e-hand to swipe gagabytes of data live off the internet and crunch it all within seconds to find at what point demand is met by supply.

That is what San Francisco based Uber, a cab-on-call app, has been up to with its spot fares designed to go up and down on one’s offer screen in line with demand and supply. It’s a kind of market unto itself: if there are too many ride seekers and not enough cabs to go round, fares rise without ado, which serves to deter some passengers and lure more carriers onto the streets until prices get scaled back again; on the other hand, if cars aplenty are going vacant (yes, it happens), it works the other way round and customers get a bonanza of supercheap rides. Either way, prices move.

The effect is sharpest if the stuff on offer would simply perish unsold. This is where efficiency counts enormously, as McDonald’s model showed decades ago by aligning its burger output with mass consumption at low cost. Except, this time it’s about über-efficiency, since the internet actually allows price dynamism in real-time.

Do prices typically fall? If competition kicks in, yes. It’s not for nothing that taxi services in big cities have been in a frenzy ever since such apps appeared about 18 months ago. In Gurgaon, for example, there was such a burst of availability late last year that cabs were cheaper than autos even for short hops. It aroused suspicions of ‘predatory pricing’, but could just as well have been software taking into account drivers ready to take anybody for any sum on their way home or something. As a WhatsApp quip had it, it was as if an unseen Berlin Wall had cracked, with market prices slipping in.

Ah, but Uber and Co are ‘aggregators’ of individually owned cabs, with each cabbie running his own little business, which means the app has virtually no control over service quality, as some customers have noted to their dismay. [Reports of a cabbie accused of molestation on 30 May by a lady passenger have reminded people of a cab horror in Delhi half a year ago.]

What happens, however, when a price wall cracks open in a market that already has loved and trusted names? And what if it’s a market full of droolsome brands that cater to finer sensibilities?

Food services may have an answer. Most aggregators in this field are relying on the existent reputations of their scroll of allied restaurants. What’s not clear is the extent to which menu prices—fixed rather rigidly as a matter of custom—can be shaken up by the power of computer chips. Some brands are open to the idea. Domino’s, for instance, has been using information to vary its pizza prices, dropping them every now and then to set some supply-chain or the other rolling with orders.

With people swiping phones for grub in ever-swelling numbers, restaurateur ego-willing, all sorts of menu prices could go dynamic. Why, an app called Yumchek—whose logo was what first piqued my interest—has even been designed as a bet on it.

Convincing eateries to give up fixed-price menus is not an enviable job. Yet, Economics 101 may find itself far more revolutionary applied to eating than getting wheeled about. For one, few markets have demand and supply so badly out of whack. For another, a quarter century since the Soviet Union came apart, eyes are still to be rolled at any ignorance of price signals that persists too long.

But first, there’s a virtual war out there to claim that prized fingertip-sized place on touchscreens. It’s a war to be in touch. And its cry is primal. Eat or be eaten.

About The Author

Aresh Shirali