In the city of Chennai, autos play a very important role. Public transport is often so crowded, that people who are not used to it often find it impossible to travel. In addition, there is a large segment of people that cannot or will not use their own conveyance. This could be for reasons like simply not owning a car or bike, to not having the patience to find parking space, etc.
Autos are ubiquitous in Chennai. There are approximately 70,000 autos. However, their distinguishing factor is the prices they charge. Legally, they are supposed to charge by the electric meter, depending upon the distance. However, this law isn’t enforced. As a result, the autos charge whatever they can get away with. This often ends up being 4-5 times the cost of the electric meter.
In all my years of living in Chennai, I am yet to come across an auto driver who charges by the electronic meter. How is this? If I was an auto driver, I would get more business by charging all my customers by the meter. I would get all the delighted customers who would regard me as an honest driver. The relatively lower pay per customer would be compensated by the fact that I would never be out of work, as no customer would refuse to travel with me. In fact, I would put a sign on my auto openly claiming that I charge only by the meter!
Seeing me, all other auto drivers would be forced to do the same if they want to keep up with me, and soon any driver who doesn’t charge by the meter will be out of work.
Image Credit: mikecogh
But this doesn’t happen. With all my expertise in economics, I’m unable to understand how this is so. As of now, an auto driver will refuse to carry a passenger if he doesn’t get his outrageous price. Why? Is he so confident that he will be able to get another passenger in that time who will be willing to pay the high price?
It’s a cartel of immense proportions that seems to contradict the economic theory that large cartels are unstable. 70,000 drivers have somehow come to an agreement that they will all charge outrageous prices. The public, for it’s part, has lost hope. They know that refusing one auto’s demands doesn’t mean that they will get a better deal anywhere else. The result is that each customer is forced to pay the high prices that the very first auto demands, knowing that he will have no better luck elsewhere.
Customers do try and ask two or three autos one after the other in the hope that one of them will charge a lower price (though still not by the meter). But this never happens.
The drivers do not seem to be behaving rationally. By not lowering his prices or charging by the meter, an individual driver is being stupid since he would get all the customers. But by doing this, the auto drivers collectively side step the prisoner’s dilemma.
A classic case where being irrational benefits the group as a whole. The result being that the city of Chennai is being taken for a very expensive ride by a bunch of stupid irrational drivers! Government regulation prevents a private player from entering the auto market and offering reasonable rates, thus cutting off the only hope of some real competition entering the market and rescuing the city.