Cabs and Principles of Economics
My first job after completing graduation was in
Bombay. Whenever I felt I should live a little, I used to hail a cab. Taking a Cab,
a decade back was a luxury. In those days, usually people preferred auto
rickshaws. Cabs were reserved for trips to railway stations, airports,
emergencies and weddings.
When Ola was introduced in India, I wondered if
ever there will be enough people who would prefer this kind of transport. I
also remember thinking that the cost of cab rides will go down only if many
people opted to use Ola cabs. When that happens, the cabs will get more trips per day and thus the cost will come down and thus the price we pay for this
service becomes lesser than the value we derive out of it. This enough number of
people looking for a cab is called a ‘critical
mass’ and the resultant increase in the number of cabs causes the price to
go down and value to go up. This is called Network
Externality.
These days, I travel to work and back home
almost always in cabs. Often I wonder if I should hire a micro or a prime cab. Hiring a micro cab will meet my Need of transport. But many a time, the Want takes over and I opt for a
prime cab so that I can stretch my legs and travel in comfort.
The first time ever I hailed a cab, I felt
elated. I was thinking how convenient life has become! The biggest relief was
due to the fact that I didn’t have to negotiate the price anymore with the
drivers. I was never good at it. I always used to wonder if the drivers were
taking us for a ride, literally and figuratively. But then as days went by, the
elation reduced. I started to look at the service with less and less
enthusiasm. May be it was the Diminishing Marginal Utility kicking in. I am not saying I don’t enjoy the service
anymore. I am eternally grateful to the hailing Apps for making our travel so
easy and hassle free. It is just that I don’t look at it with the same sense of
wonder and admiration as I used to. Also, there are days when I miss the bus
commute.
As I was missing the bus commute, God decided
to answer my prayers and give me a chance. As a result, yesterday, I waited outside my
office for a very long time looking for a cab. The problem with evening time
especially in the place that I work is that there isn’t anyone coming in to
that area during that time. At 5 pm, there are thousands of people wanting to
leave that place and reach their homes. This means that there are a lot of people
wanting to hail cabs(Demand) but
there are very less cabs coming in(Supply)
to drop people. This imbalance causes an endless wait. Add to this, a bit of
rain and then one is left with no option but to take a bus.
If I have to take a bus, I need to walk half a
kilometer. I thought for a while and decided to wait for the cab for some more
time. If I walk, I will get a bus soon. If I don’t walk, I will get a cab but
not soon. It will take time. Basically, I need to choose between time and the effort
of walking. This is called Trade off.
I waited and waited and waited. At first, I
thought I will wait for 15 minutes. Once I waited for 15 minutes, I thought now
that I have spent 15 minutes, let me wait a bit more. It became half an hour.
Once it was half an hour, I decided I can’t just let half an hour be wasted
like that. Now, I will ensure that I take a cab itself. That half an hour is my Sunk Cost.
Understanding the futility of my want for a
single cab at a time when there was limited number of incoming cabs and the traffic
being held hostage by the rain, I decided to take the shared cab thinking that
it is the best I could do to further Utilitarianism
and thus contribute in my small way to reduce traffic.
Finally, I found a shared cab and got home forty-five
minutes later which left me wondering if I should revisit my Sunk cost dilemma
the next day.
