All well and good. But then two questions arise
1) What led to the demands from public for regulation of cab fares?
2) What led the governments to regulate the cab fares?
Let's talk about the first question - demands from public to regulate cab fares.
This is all about our first question - What led to the demands from public for regulation of cab fares? Let's turn to our second question - What led the governments to regulate the cab fares?
A part of the answer could be related to political economy where unionized radio taxi drivers exert pressure on the government. Let's understand other reasons.
As argued above, the key to legitimacy of Uber's surge fares is its demand to price mapping system. A quick recap: Uber's system signals that the surge is not a deliberate attempt to leverage information asymmetry or exploit the situation of customer, but it is a result of demand-supply mechanism. If the key to legitimacy of surge fares is the existence of demand-price system then such surge may not be acceptable in cases without such systems, like the case of usual taxis. In the absence of such systems in radio taxis, a cap on their fares was the solution.
The question then is — What happens in a situation where two types of services coexist — Uber, with a distinguishing mechanism between demand led surge and deliberate exploitation; and a normal radio taxi system without such distinguishing mechanism. There are three options in such scenario.
One, allow Uber's fares to cross usual fare caps (applicable to radio taxis) while retaining fare caps on radio taxis. If it's done, then taxis may object to the obvious differential treatment. Hence, it isn't a possibility.
Two, remove fare caps on both Uber and radio taxis.
Three, put fare caps on both Uber and radio taxis.
Faced with a dilemma between second and third options, governments prefer to tread the 'known territory' of applying fare caps, the third option. So, they end up bringing Uber also under the ambit of fare caps. The alternative of removing fare caps on everyone (second option) is too radical for a government because it doesn't know its consequences and it's worried about potential fallouts of cap less fares on radio taxis. The fear is exacerbated by the governments' usual approach of focusing on containing risks and not on enhancing gains — similar to focus on 'letting not other team score a goal' instead of 'scoring a goal and winning'.
Now that we understand the problem better, how does one deal with demands to cap surge? As discussed above, the problem is the breakdown of trust on Uber's price determining mechanism. The solution is to rebuild the trust by making the pricing mechanism transparent. Since, sharing the proprietary algorithm publicly is not a possibility, one should look out for other ways.