PRICE increases in Grab were borne out of the dearth in supply and increased demand, and not because it had no one to compete with, a company official said, belying the government’s claim that Grab had jacked up its prices due to its virtual monopoly in the ride-hailing market.
Leo Emmanuel Gonzales, who heads the public affairs division of Grab, said the continuous surge-induced prices for rides—be it private car, pooled, six-seater, or premium—are a result of increasing demand for the service, as well as the lack of supply of drivers.
He underscored the need for at least 6,000 transportation network vehicle service (TNVS) operators—or peers—to drive prices down on Grab’s pricing system, known as dynamic pricing.
“We are of the view that any perceived increase in price is a not an exercise of any market power, but the result of demand and supply imbalance given the current shortage of available drivers and the regulatory constraint relating to the TNVS cap, which are outside of our control,” he said.
Dynamic pricing scheme takes into account factors such as supply-demand ratio, traffic condition and length of ride in determining the fare. It also puts in surges in areas where there is high demand and low supply.
Monday saw the Philippine Competition Commission (PCC) claiming in an initial report that users of Grab have had to pay more and experience lower quality of service after the company’s acquisition of sole-rival Uber, hence significantly lessening competition in a captive market.
Aside from this, the competition commission said the market forces today dictate that the entry of five new players in the sector will not pose any form of threat to the incumbent, proving fresh competition insufficient to limit Grab’s virtual monopoly in the $64-million industry.
Based on the executive summary of the Statement of Concerns issued by the Mergers and Acquisitions Office of the regulator, Grab’s acquisition of Uber has resulted in the former’s gaining of a “near monopoly” on both customer base and driver pool.
“Considering that Grab now holds a near monopoly of both the driver and customer base in the relevant market, Grab can unilaterally raise its prices and reduce the quality of its services, as it experiences no sufficient competitive constraint from any other market participant,” the document read.
The commission noted that prior to the transaction, Grab’s prices were on a steady decline, due to pressures from more affordable Uber riders.
However, notable spikes in prices were recorded post transaction. This is based on price monitoring conducted by the commission a few days prior and after the consummation of the deal.
It also noted an irregularity on the dynamic pricing scheme applied by Grab, which bases prices on supply-demand ratio, traffic condition and length of ride.
“Prices have increased despite an increase in the supply of Grab drivers,” the document read. “This upward trend in price is apparent through the higher fares, and increased frequency of surge pricing applied by Grab.”
And while the commission did not provide absolute terms, Party-list Rep. Jericho B. Nograles of the Puwersa ng Bayaning Atleta noted the “base fare” in Grab rides has doubled.
Based on the fare matrix approved by the Land Transportation Franchising and Regulatory Board (LTFRB), Grab is allowed to charge users with a P40 base fare and a per kilometer rate ranging from P10 to P14.
Surge pricing is also capped at two times.
Nograles claimed it has now doubled to P80, and flagged it as illegal.
The BusinessMirror conducted several booking trials with the same pick up and destination, and confirmed the lawmaker’s claim.
“This is brazen act shows not only disrespect to the regulators, but proof that Grab Philippines has no intention to follow Philippine laws,” he said.
Before any form of transportation means could implement price hikes, it has to receive a green signal from the transport regulator.
However, Manalo noted that Grab is charging a “minimum fare” of P80, which is not the base fare, for bookings less than three kilometers.
The PCC also noted problems on service levels also arise out of the virtual monopoly of Grab.
“Competition does not bring only low prices to consumers, but also a higher quality of services, more choices for consumers, and increased innovation. The elimination of Grab’s sole competitor in the relevant market may also deprive customers of these benefits,” the document read.
The investigation conducted by the competition watchdog showed the quality of services of Grab has decreased post-transaction in the following manner: increased driver cancellation; forced cancellation of rides; and increased waiting times.
“This is compounded by the loss of a competitor in Uber where trips were less likely to be cancelled due to features which mask the destination of a prospective rider until the start of a trip,” the document read.
For Grab’s part, Manalo said his group has implemented a three-month initiative to improve customer service.
“We have also implemented changes to the Grab app to address driver cancellations and have also launched the 100-day improvement plan to improve driver and rider experience; we have undertaken these not only to address any perceived consumer harm arising from the transaction, but also to simply improve our service,” he said.
The PCC also identified the ride-hailing sector as a captive market, which means more than a majority of passengers are not likely to shift to other modes of public transportation despite price increases by transport network companies (TNCs).
Grab now holds 93 percent of the total transport network vehicle service (TNVS) registered vehicles.
This, according to the office, results in Grab being able to “profitably increase its prices given its market share as riders will not shift to other modes of public transportation.”
In a market research conducted by research firm Statista, there were about 2.96 million users of ride-hailing apps in the Philippines. This is expected to increase this year to 3.5 million, and balloon to 5.4 million by 2022.
There are five new entrants in the ride hailing market — all seeking to slice portions of Grab’s market share. These are Hype, Hirna, Owto, Golag, and Micab. They all differ in services provided, but combined, their products are already in the Grab system: private cars, pooled rides, taxis, premium vehicles, six-seater cars, and delivery services.
But despite their foray into the market, they are initially seen as unlikely competitors, given the nature of their entry — zero driver and customer bases.
“While the office notes that there are new entrants to the relevant market, historical data shows that it would take a significant amount of time and cost for these new players to grow a driver and rider base sufficient to contest the incumbent,” the PCC’s statement of concerns read.
During such period, Grab will not be constrained by any competitor, allowing it to exercise its market power in the relevant market, it added.
“Therefore, the office finds that new entrants in the relevant market are not likely to exert sufficient competitive pressure on Grab,” the document read.
The issuance of the statement of concerns from the competition commission is part of its motu propio review of the transaction between Grab and Uber.
It launched such a review after it found probable cause for a substantial lessening of competition in the market due to the acquisition.
Normally, a motu propio review — or an evaluation set by the agency itself — has two phases.
The first phase of review can go up to 75 days. The second phase can go for as much as 120 days. Hence, a total of up to 195 days.
But due to the nature of the deal, the regulator intends to fast track the review, which can be done if parties involved in the evaluation will be cooperative in producing documents required by the antitrust body.
Grab acquired all of Uber’s Southeast Asia assets on March 25, signaling the exit of Uber from the region.
Manalo noted his group is hopeful that the antitrust body will be fair in its conclusions, and would lend an open ear to its explanations.
“We hope that the PCC will fairly assess our arguments and sit down with us to discuss how to address any issues that the PCC may identify moving forward,” he said.
Image credits: Alysa Salen