How India's Price Ceiling on Uber Rides

Causes Shortages

You just got out of work in India. You decide that instead of walking home, you
will ride - you open up Uber, select a car, and... wait. All that you will be doing
is waiting, because during peak hours in India, there is a huge shortage in
Ubers. This shortage is caused by a government policy called a price ceiling.
Whenever a government sets a price ceiling, shortages occur - the demand is
larger then what the seller is willing to provide.

In Uber’s case, the Indian government set a price ceiling as an attempt to give
taxis back an advantage. By putting a ceiling on the price of Uber rides, India
attempted to lower the high price of Uber rides during peak times. However, this
plan backfired, hurting:

 The riders, because of reduced availability of cars

 The drivers, because they are paid less during peak hours
 Uber, because they are paid less during peak hours
 The city, because there are large crowds without rides

India’s use of a price ceiling to “solve” an issue is simply one example of many.
When the U.S. government placed price ceilings on gas in the 1970s, long lines
formed. Because the Polish government kept T.V. prices low, televisions were
scarce in Poland.

The supply and demand graph above further illustrates the point. When the
demand shifts to the right, Uber automatically picks a new price point, p2. When
the government stops it from increasing its price, the price stays at p1, creating
a shortage.

Uber in India is but one example of why price shortages are bad for suppliers,
demanders, and the government. Instead of limiting the price on Uber surges,
India could instead offer taxi drivers additional money while keeping fares the
same, offering an alternative product to Uber and lowering prices naturally.
There is almost always a better alternative to price ceilings.