July 24, 2019

Grab technology contributes Rp 46.14 trillion in consumer surplus

The digital economy continues to influence our way of life, but it has also triggered the question of how to measure its contribution to the national economy, especially for the welfare of the people. The bigger question is: How can technological innovations benefit society?

The Centre for Strategic and International Studies (CSIS) and Tenggara Strategics attempted to answer the question by conducting a series of research that placed Grab, a solution application company, as its case study. CSIS and Tenggara Strategics measured the increase in people's welfare from the consumer side in the form of consumer surpluses felt by consumers of GrabBike and GrabCar in the Jakarta-Bogor- Depok-Tangerang-Bekasi (Jabodetabek) region. 

Consumer surplus is the benefit that consumers get from buying goods or services at a price lower than the maximum price they are actually willing to pay. The highest price that consumers are willing to pay minus the purchase price of a transaction is a consumer surplus. For example, if someone is willing to pay IDR 200,000 for a trip from their home to Soekarno- Hatta Airport while the price given by Grab for the trip is IDR 150,000, then that person will get a consumer surplus of IDR 50,000.

The challenge is that while the purchase price can be seen directly from the transaction, the highest price consumers are willing to pay is not seen directly. Researchers had to be able to uncover consumers’ willingness to pay to find out the highest price that consumers are actually willing to pay. 

This is the first digital economic study in Southeast Asia to utilize big data to calculate consumer surplus. It offers a nuance to existing studies by covering the implementation of the hyperlocal strategy, namely GrabBike; significant differences in terms of transaction prices, volume, and payment methods; and differences in the behavior and choices of transportation modes for consumers. 

This research estimated that Grab technology contributed around IDR 46.14 trillion in consumer surplus for the Jabodetabek region in 2018. The consumer surplus obtained by GrabBike consumers was IDR 5.73 trillion, while GrabCar contributed IDR 40.41 trillion. 

How does this affect consumers? Grab services allow customers to save money they prepared to travel from point A to point B. The money they save, which was previously allocated for transportation, can now be used to buy other items. That is, customers can use the surplus enjoyed to buy goods or services that can improve their quality of life.