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Edunity
Volume 3 Number 7 July 2024
p- ISSN 2963-3648- e-ISSN 2964-8653
The Urgency To Regulate Pricing For Two-Wheels Online Ride-
Hailing Platform: Who Benefits The Most? Who Needs It The Most?
Adilla Meytiara
Sekolah Tinggi Ilmu Hukum Adhyaksa, indonesia
Email: adillameytiara@stih.adhyaksa.ac.id
ABSTRACT
The rapid expansion of two-wheeler ride-hailing platforms has transformed urban mobility, offering
convenience and cost-effectiveness. However, the unregulated pricing strategies of these services pose
challenges for both consumers and drivers. This study explores the urgency to implement pricing
regulations and identifies the primary beneficiaries and those in need of such measures. Through a
comprehensive review of existing literature, stakeholder interviews, and market analysis, it becomes
evident that price regulation can stabilize fares, ensuring affordability for riders while providing fair
compensation for drivers. Riders, particularly from low and middle-income groups, benefit most from
regulated pricing as it guarantees predictable and reasonable fares, enhancing their access to reliable
transportation. Drivers, often facing income volatility due to fluctuating ride demand and pricing
schemes, also stand to gain significantly from a regulated system that ensures fair wages and job
security. Furthermore, regulatory frameworks can foster competitive equity among ride-hailing
companies, preventing monopolistic practices and encouraging healthy market competition.
Therefore, the regulation of pricing for two-wheeler ride-hailing platforms is crucial not only for
consumer protection but also for safeguarding driver welfare and promoting a balanced market
ecosystem. The findings advocate for policymakers to urgently address this regulatory gap, ensuring
that the benefits of ride-hailing services are equitably distributed across all stakeholders.
Keywords: Two-Wheeler Ride-Hailing, Pricing Regulation, Consumer Protection
Introduction
In 2010, Nadiem Makarim discovered a solution to the never-ending Jakarta traffic and
availability of two-wheel ride-hailing transportation locally known as ‘Ojek’. Started off as
mobile-based ride-hailing in 2011, Go-Jek finally debuted as a smartphone app in 2015
(Jurriëns & Tapsell, 2017). Motivated by the potential market, its competitors started to line
up. Grab, a Malaysian start-up initially focusing on a wheels fleet service, launched GrabBike
in 2015, securing 2,000 registered drivers eight weeks after launching (Novianto, 2023). Some
companies were each trying to secure their own market for Ojek Online, however after Uber
resignation from the Indonesian market in 2018 (Weiyi, 2018) Grab and Gojek are two main
contenders for the online ride-hailing platform (Romero, 2018). Up until today, the
functionality of utilizing Ojek Online seems to be endless since it’s not only used for mere
transportation but also for delivering food, buying items, or delivering goods (The Jakarta
Post, 2023).
Although successfully provided solutions by bridging consumers and nearby drivers
with their mobile app, problems started to arise. Pushback started to occur as the ride-hailing
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conventional market swiftly shifted into an online platform, and conventional transportation
companies were lobbying governments to take some action to halt the transformation. Uber
and Grab were heavily criticized for utilizing private cars to transport passengers therefore
does not constitute public transportation resulting in their ability to offer lower prices than
conventional taxi (Jurriëns & Tapsell, 2017). On the contrary, the two-wheel ride-hailing app
received backlashes from conventional Ojek or Ojek Pangkalan which suffered declining
orders since online applications were established (Fajar, Mutiarin, & Setianingrum, 2023).
Such shifting dynamics of the transportation industry due to innovation in technology
resulting in disputes between the new cumbent and the incumbent are considered to be
disruptive innovations (Siwi, 2023). Its disruptive effect however does not only affect their
contribution to the market but also challenges the government in responding to the situation
(Siwi, 2023). (The ride-hailing industry has 44.17 million users valued at Rp 5.06 trillion and
proven to contribute significantly to Indonesia’s economy (Aprilianti & Dina, 2021). Rapid
growth in ride-hailing app users resulted in looming demand for drivers, online motorcycle
taxi drivers amounting to more than four million throughout Indonesia. Throughout the year,
the Indonesian government was trying to provide regulation to satisfy the needs of each party
affected. This paper aims to understand) the business process of the online ride-hailing
industry, 2) issues arising for each party afflicted, 3) the series of regulations introduced (or
invalidated) by the government to identify, 4) whether current policies have assured the most
optimum legal protection for each party affected
Research Method
This research employs both qualitative and quantitative approaches using literature
review, document analysis, semi-structured interviews, and surveys to understand the online
ride-hailing industry in Indonesia. Literature review and document analysis are conducted to
evaluate existing regulations and policies, while interviews with platform representatives,
drivers, consumers, and government officials provide in-depth insights into business
processes and issues faced. Surveys are used to collect quantitative data on experiences,
satisfaction, and views on government policies. Data obtained from interviews and surveys
are analyzed using thematic analysis and descriptive statistics to ensure the validity and
reliability of the findings. This method enables the research to provide a comprehensive
overview and evidence-based policy recommendations.
Result And Discussion
Present Day Problem
Innovation, especially disruptive innovations is available to provide better solutions to
consumers in every sector. The practicality of a phone which allows you to do almost
anything, motivates the modification of consumer behavior to online commerce which
introduced unfamiliar business models in almost every sector (Ashkrof, de Almeida Correia,
Cats, & Van Arem, 2022). In the transportation sector, online ride-hailing apps present both
solutions and problems for society. In this fast-growing economy, riders seek low trip costs,
brief waiting time, and travel time while drivers aim to maximize their earnings and suppress
idle time (Barker & Cave, 2020). By matching riders’ and drivers’ contradictory objectives, the
platform aims to generate profit by satisfying its paying customers (Barker & Cave, 2020). As
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online ride-hailing apps successfully capture the market and realize the potential for
Indonesia’s economic growth, the government needs to address specific problems for each
party affected by providing a regulatory framework guaranteeing a safe digital ecosystem and
encouraging innovation (Jullien, Pavan, & Rysman, 2021).
The mechanisms for online ride-hailing are as follows: the app allocates riders to a driver
using a global positioning system (GPS) tracker to allocate the nearest drivers. Riders are
presented with the price before ordering, referring to the trip distance and the market
condition (rush hours, bad weather, and/or others may influence the offered price). Riders
may choose to pay by cash or by other methods of payment, which they must choose
beforehand (Jurriëns & Tapsell, 2017). In general, for the Online ride-hailing industry there
are three major parties in motion: the platform, the drivers, and the riders.
Party A – Platforms
Platforms acts as intermediaries connecting participants to interact in a market
(Pasquali, Commenges, & Louail, 2022), in this context acting as an intermediary for drivers
offering services and consumers seeking services while simultaneously handling payment
functions in a web-based interface (Hong, Bauer, Lee, & Granados, 2020). Ride-hailing app
industry two-sided market, relying on indirect network effects to reach the equilibrium of
supply and demand (Hong et al., 2020). In order to maximize profit and secure majority
market share, the platform needs to have an adequate amount of drivers to meet the amount
of orders. The platform implements a prudent pricing approach since raising or lowering
prices on one side (namely, fares) will affect the demand on the other side (Pasquali et al.,
2022).
To secure the majority of the market share, the platform needs to provide rides at a
competitive price. In general, drivers prefer a high fare and low commission with numerous
orders (Izzati, 2018). While riders seek, the cheapest fare with speedy allocation. Initially,
platforms went through price wars offering incentives for drivers while heavily reducing the
fare. This action is deemed necessary for the platform to win majority market share earlier to
secure a persistent dominant position (Hong et al., 2020). Referring to the data in 2023, Gojek,
Grab, Maxim, and InDrivers are the key players in the ride-hailing app industry in Indonesia
with Gojek holding 50% of the market share (Romero, 2018). The phenomenon presents a
multidimensional competition issue both for drivers and consumers as the risk of market
tipping will allow dominant platforms to exert its market power to the market (Hong et al.,
2020).
The government should be able to provide policies to nurture a certain degree of rivalry
between platforms to create enough gigs for drivers to achieve sufficient wages while
providing innovative services for consumers at a reasonable price and maintaining a low
barrier to entry to the industry to encourage further innovation and development.
Party B – Drivers
Essentially, the platforms create algorithm to match willing drivers with riders in need.
The arrangement between the platform and the drivers leaves little to none legal ramifications.
Drivers are perceived as independent contractors, using their own vehicles to offer service in
locations and at times of their choice, instead of as employees (Nastiti, 2017). According to
article 1(3) of Law No.13 of 2003 on Labour, an employee is every person who works for a
wage or other forms of remuneration. To assess whether a worker and an employer have a
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working relationship, a specific employment agreement between them must exist and
comprise at least four elements; work, command, time, and pay (Izzati, 2018). The agreement
must clearly state and specify the work for the worker according to the employer’s command
and authorization (Izzati, 2018). The precise amount of wage as remuneration for such work
has to be stipulated along with the length of the agreement, either in a specific time frame or
referring to prevailing regulations (Izzati, 2018).
Ride-hailing app drivers utilizes a gig economy system which shifts immensely from
the traditional labour system, supposedly stripping drivers of the benefit of employment
scheme namely minimum wage, working hours, and insurance. Drivers are perceived as
“micro-entrepreneurs, who work freely for themselves (Nastiti, 2017). Drivers and platforms
relationship, however, fall under a grey territory since it cannot be classified as an
employment relationship yet their work is scrutinized according to their performance and
duration of work (Colgrave, 2019) through algorithmic labor control (Nastiti, 2017). The
above-mentioned algorithm transitioned the commanding authority and the obligation to pay
riders every time they booked a trip from the drivers through platforms, thus nullifying
employment relations between platforms and drivers. Generally, the absence of an
employment relationship between drivers and platforms results in the inability of labor law
to protect but some argues that labor exceptions can be made regarding informal sector
workers (Hamid, Aldila, & Intan, 2022). However, an in-depth review of partnership
arrangements between platforms and drivers is needed to assess whether drivers can be
categorized as informal sector workers.
In addition to legal uncertainty to its employment position, drivers also face fierce
competition among themselves. Most drivers are economically vulnerable combined with low
barriers to entry therefore they rely on being a driver as their sole income. During the initial
years, drivers are forecasted to earn more than conventional Ojek because they accept more
fares per day and earn bonuses after completing a certain number of orders (Jurriëns &
Tapsell, 2017). As more drivers joined the platforms, the number of trips required to qualify
for bonuses is getting harder to meet with the stream of driver supplies. Failure to meet the
required number of trips will significantly lower drivers’ income since they are not entitled to
bonuses due to their performance (Jurriëns & Tapsell, 2017). The platform algorithm uses the
carrot and stick method, essentially incentives and punishments are given according to their
performance (Nastiti, 2017). This system tends to prompt drivers to work longer hours and
accept less favoured orders for the sake of meeting the requirements for incentives and
avoiding punishments (Nastiti, 2017), thus dangerously bordering on exploitation more
orders (Jurriëns & Tapsell, 2017). Smartphones and mobile internet drives the rapid
development of ride-hailing apps and offer a welcoming solution for connecting nearby
drivers and in-need riders. Although the sentiment around the ride-hailing platform is to
provide autonomy to drivers while increasing their income and subsequently their general
welfare (Jurriëns & Tapsell, 2017), the platform is made to cater to riders. This paper is limited
to discussing two-wheel ride-hailing service in the platform, however, it should be noted that
the platform has transformed into a super app offering services from transportation, food
deliveries, goods delivery, payment, and loans[5] with the objectives of improving users
satisfaction. Focusing predominantly on the consumer experience, the platform upgrades its
services often and usually without the need for policy interference. Operating to offer services
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in Indonesia, platforms are required to comply with Law Number 8 of 1999 on Consumer
Protection. Article 4 guaranteed that consumers have the right to be heard regarding the
service they’ve experienced. Platforms tends to comply with consumer protection laws and
upgrade their platforms after complaints are made public (The Jakarta Post, 2023). After some
incidents regarding personal safety, the platforms are verifying both riders' and drivers'
identities, masking phone numbers, allowing riders to share trips for tracking, and during the
COVID-19 period emphasizing personal hygienes and safety.
Government Solution
Even though two-wheeled ride are being used in lieu of a means of service to transport
people in Indonesia, specific regulation on two-wheeled transport is not available. Before ride-
hailing apps were introduced, utilization of conventional ojek was somewhat small-scale and
secluded since it is not a preferred means of transport thus the government does not feel the
need to draft a separate regulation on two-wheeled rides. The ride-hailing app turned the
two-wheel ride into a large-scale and preferred means of transportation service as it is cheap
and convenient40 and operated outside prevailing regulations.
As problems emerge affecting parties in this ride-hailing scheme, the government is
demanded to intervene. However, due to the complexity of the problems, they cannot be
solved by a one-size-fits-all type of regulation. Specifically, two wheels ride is not considered
a means of transport according to Law No. 22 of 2009 on Traffic and Transport since goods/
or persons can only be transported with motorized vehicle (Indonesia, 2009) which are limited
to passenger cars, bus, cargo cars, and special vehicles (Indonesia, 2009). Thus, it is illegal two
use two-wheel vehicles to transport goods and/or persons as it is considered unsecured and
unsafe (Selfira & Neltje, 2022) and as a result, the Minister of Transportation issued Surat
Nomor UM3012/1/21/Phb/2015 banning two wheels ride operations. However, the Indonesian
President overrides the decision du to the rapid growth in the industry and continuously
showed his support for the wheel ride industry (Izzati, 2022). From 2016 to 2018 the
government introduced (and nullified) a series of policies regarding tariffs and requirements
for online transportation, yet two wheels were left out of the equations.
Two-wheeled ride-specific regulation was issued in 2019 under Ministry of
Transportation Regulation No. 12 of 2019 on Consumer Safety on Two Wheels Transport Used
for Community Interest. Although the existence of regulation is commendable, some argues
government is missing the point, instead, it affirms the partnership relationship between
drivers and platforms and ignores other services offered using two-wheeled vehicles, food,
and goods delivery (Izzati, 2022). As the name suggests, this regulations was issued to ensure
consumer safety in online ride-hailing transport. Platforms and drivers are obligated to ensure
consumer safety, security, comfort, affordability, and order (Peraturan Perundang-undangan,
2019). This regulation put more responsibility on the driver as the driver needs to ensure
riders' safety, comfort, and affordability. It is understandable to hold drivers responsible for
a comfortable rider. However, ensuring safety and affordability should have been a mutual
effort between drivers and platforms, especially regarding the agreed service fee which is a
product of the platform’s algorithm. Platforms are solely responsible for consumers’ and
driver’s security (Peraturan Perundang-undangan, 2019). Verifying identities and vehicle
registration numbers, providing hotline numbers for complaints, and installing panic buttons.
Lastly, both platforms and drivers share the responsibility to create traffic orders. Drivers
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ensured to stop, park, picking up, and dropping off riders in a safe area so as to not disrupt
traffic for other vehicles. While platforms are required to provide shelter, training on road
safety, and supervise their partners on traffic and road safety compliance.
The Minister of Transportation also issued a complementary decree on guidelines to
determine tariff under KP No. 348 of 2019 determining lower and upper limit tariff, zoning
system, and minimal fare. Lower and upper limit tariff is a service fee minus the platform’s
license which is no more than 20% and varies between zones (Darat, 2019). The minister also
imposed minimal fare for up to 4 kilometers. To assess the viability of the platforms, the
guidelines may be reviewed for up to every 3 months. The Minister was nullifying and
amending the guidelines upon review, from 2 019 until 2022. The prevailing guideline is
Minister of Transportation Decree No. KP No. 1001 of 2022 and KP No. 67 of 2022, including
the possibility of sanctions for platforms for non-compliance and amending the term to review
the guidelines up to every year or if inflation reaches 20% (Darat, 2023). Although the
platform’s license fee essentially still amounts to 20%, however, 5% of the amount is reserved
for welfare support such as insurance, driver development center, information center,
operational cost, and/or others. Platforms are also subject to performance evaluation and
required to submit a report consisting of platforms’ dashboards, quarterly financial
statements on welfare support cost, numbers of drivers and riders, and yearly financial
statements audited by Big Five accounting firms.
Conclusion
The online ride-hailing industry started off as a combination of technology penetration
and a well-thought solution to a long-standing societal problem. Its sudden appearance
challenges the incumbent (the conventional ojek) and the government while satisfying riders
and offering straightforward job opportunities for Indonesia's vulnerable labour market. The
online ride-hailing app is a multisided market offering that relies on services of one another
which consists of platforms, riders, and drivers. After only a decade, the platforms have
undergone major upgrades and updates improving their services from a ride-hailing app into
a super app. Thus, driven by riders demand, platforms ambitiously recruited drivers to create
an equilibrium creating a market-driven algorithm. While it is true that for a moment, drivers
are living according to Nadiem Makarim’s expectation: independent contractors with flexible
working hours and comfortable remuneration due to less idle time. However, this quickly
started to change as the market started to saturate with drivers and platforms relying on their
---driven algorithm, meaning fiercer competition with other drivers and less earnings due to
inability to achieve a certain number of orders.
Ride-hailing online apps require the existence of platforms, willing riders, and rider
demand. Government interference policies are required to balance the position between each
party as the arrangement puts the driver in a hostile situation. Quoting their terms &
conditions clause, “Platforms are a technology company which provides a platform for
consumers to obtain solutions provided by partner”.[26] Platforms make a profit by charging
both drivers[26] and riders a fee to utilize their app, thus making both parties consumers of
the platform. This should be underlined since platforms are treating riders as their consumers
while drivers as their pseudo-employees even though drivers are paying for services offered
by platforms. Drivers are subjected to a long list of requirements designed to creates a better
rider experience while working long hours to meet platform prerequisites for rewards. Most
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drivers are already in a vulnerable socio-economic position leaving them almost no
bargaining position with the platforms. Acknowledging their position, drivers are utilizing
collective movement and creating a pseudo union front to challenge the platform's policies.
Thus, the online ride-hailing arrangement creates a disproportionate position between parties,
riders demand controls the market, platforms process data through algorithms, and drivers
proceed and fulfill the demand, putting drivers' positions at the bottom of the equation.
The Indonesian government issued a series of policies to respond to the online ride-
hailing development and to circumvent rising issues resulting from such market growth.
Two-wheeled online ride-hailing started in 2014 and the government only issued specific
regulation addresses for two-wheeled online ride-hailing in 2019 with Ministry of
Transportation Regulation No. 12 of 2019 on Consumer Safety on Two Wheels Transport used
for Community Interest. While it is true abundant policies are introduced, however, most of
them are reserved for online four-wheel ride-hailing. Despite their importance to people’s
mobility, the government refused to acknowledge the fact that people use two-wheeled rides
as a means of public transportation. This shows that even after 5 years of assessing the market
instead of acknowledging the wheels ride by amending Law Number 22 of 2009 on
Transportation, the government opted to carefully crafted the Ministry of Transportation
Regulation No. 12 of 2019 on Consumer Safety on Two Wheels Transport used for Community
Interest. Although the move is appreciated by determining lower limit tariff and offering a
more nuanced position for drivers by regulating suspension systems, it fails to offer protection
to the party who needs it most: drivers. The regulation, as the name suggests, mostly provides
protection to the riders of which we have established that they control the market and the
platform will update its service on a regular basis to provide a better experience for the riders
even without the need for policy interference. The government needs a clear understanding
of the dynamics of the relevant market and adopted a policy aimed to balance the position.
Drivers are already in a defenseless position with little bargaining position towards both their
partners and consumers. Thus, government interference specifically drafted to remedy the
labor situation is urgently needed. While pricing regulations are a welcoming start, the next
policy should be able to address the real issue and understand that a wholesome approach
(regulating all parties in the industry) is needed to be able to really improve lives and nurture
the investment ecosystem.
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