Grabbing Dollars

So Grab announced their $1 fee hike recently and there was a bit of public backlash. It was perhaps a bit of a sneaky marketing where they claimed it was for the drivers but then revealed that after June 2021, they will collect their 20% fee on that $1. There is the expected public uproar which I cannot be sure is matched by actual action of switching to other ride-hailing apps. After all, Grab did change the culture in Singapore’s private hire car industry. I think we can often have sentiments that don’t match our actions.

There are analysis of the consequences to Grab and the sense is that financially, Grab might not exactly be affected so negatively. It is claimed that they were trying to arrest the decline in drivers. I’m not too sure about that. But what I thought is interesting, is that this $1 fee hike in reality is a very good test of Grab’s market power and the extent of cartelisation of this industry in Singapore.

While some of the competitors may cash in and try to grab market share (pardon the pun) for example in the case of Comfort trying to emphasize their rental rebates to drivers; others might actually silently be just repricing their fares to match Grab. After all, consumers don’t have that much options; and even if one of these apps match Grab in terms of the ride fares on customer side, they might still gain more drivers through the fact they have a lower commission rate.

Grab has proven that the ability to keep drivers on their platform is an important strategy to stay in the lead. A lesson Gojek might have to learn (a non-random, unsystematic and limited-sample survey revealed that drivers think Gojek benefits their customers too much over their drivers). Customers in Singapore are not exactly that spoilt for choice. After a while, if most of the apps on average price themselves not much lower than Grab, they’d tend to default to Grab. The habits in terms of apps use is very sticky and Grab’s variety of services that keeps you tapping on their app icon is a powerful habit-forming process.

The fact that when Competition Commission lifted restrictions on fare hikes and Grab started moving fares in that one direction shows that they do have substantial market power. And even if it’s not about this one single dominant firm, they have set themselves as the barometric firm being able to call the shots on the ride-hailing “tacit” cartel in Singapore. These are things Competition Commission should be looking into.