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August 18, 2005

Market Forces

I have been learning about a free market economy over the past couple of weeks. Being able to barter to find the market price for things has enabled me to see the ebb and flow of prices as a function of other factors. I will take auto-rickshaw rides between two ghats in Varanasi as an example.

An auto-rickshaw ride from Dashaswamedh Ghat to Assi Ghat takes about ten minutes. At around midday, a ride costs about 35 rupees ($0.81 USD). However, after dark the same ride costs 80 rupees ($1.84 USD).

I believe that the main reason that prices are lower at midday is that many vendors have not yet had any business and are starting to get desperate. There are also a lot of vendors around and even though the streets are packed, many potential customers are staying indoors because of the heat.

After dark, there are more potential customers on the streets. Additionally, many rickshaw drivers have already made some money for the day and they might feel that additional work is not as necessary. There also seem to be less drivers around in the evening.

I have noticed that prices are also much lower when it is raining or when there is a national holiday, such as independance day.

If you wish to carry out your own research, here are some guidelines on finding the true market price:

  1. Walk towards a group of rickshaw drivers.
  2. Ignore the ones who are shouting at you and focus on a quiet one.
  3. Say the name of the destination. He will try to usher you into the rickshaw.
  4. Do not move, intead ask how much.
  5. He will quote you X.
  6. Calculate (X/2 * 0.75). Offer him this much.
  7. He will then ask for (X * 0.90).
  8. Walk away.
  9. Go to another driver, offer (X * 0.6).
  10. He will ask for (X * 0.9).
  11. Walk away.
  12. He will call you back and accept (X * 0.6).

Therefore, the true market price of a rickshaw ride is always 60% of the originally quoted price. Although this true market price may be known from the orignal interaction, it is only obtainable through the bartering process described above.


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