Efficient pricing of urban public transport with budget constraints
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Efficient pricing of urban public transport with budget constraints. Nils Fearnley Institute of Transport Economics, Oslo E-mail: naf@toi.no. Financing public transport in Norwegian city Trondheim. Operating revenue/cost. Efficient pricing with budget constraint.

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Efficient pricing of urban public transport with budget constraints

Efficient pricing of urban public transport with budget constraints

Nils FearnleyInstitute of Transport Economics, Oslo E-mail: naf@toi.no


Financing public transport in norwegian city trondheim

Financing public transport in Norwegian city Trondheim

Operating revenue/cost


Efficient pricing with budget constraint

Efficient pricing with budget constraint

  • MC pricing not possible Deficit

  • Yield management Max profit

  • Ramsey-prising Minimise welfare loss caused by budget constraint

    Price differentiation 


Quality and quantity differentiation

Quality and quantity differentiation

  • Quantity:

    • Number of trips: multi-journey coupons, group tickets, family tickets etc

    • Distance: Zone systems, city centre ticket

  • Quality: Passengers’ WTP vary with i.a.:

    • Means of public transport

    • Travel time

    • Departure time

    • Interchanges

    • Etc


Differentiation of demand segments

Differentiation of demand segments

  • OAP, student, family, military etc

  • Niche markets

  • Requires indisputable segmentation of passengers

  • Pricing must reflect segment’s price elasticity/WTP


Differentiation disadvantages

Differentiation – disadvantages?

  • Rebates and surcharges: unfair?

  • Too complex fare structure?

  • Trade off between simple and “fair” systems and efficient cost recovery

  • Create goodwill with attractive rebates


Patronage growth opportunities

Patronage growth opportunities

Elastic demand:

  • Short and long trips

  • Leisure and off peak

  • Long term

  • Rail

    Combine peak surcharges and off peak rebates

    to maintain revenue


Is efficient pricing possible

Is efficient pricing possible?

  • Rigid fare scales and political opposition?

  • Problems related to integrated fares between cities, transport modes, operators?

  • Practical implementation?

    Some examples 


Time differentiation

Time differentiation

  • Sweden:Stockholm: Wild card, Monthly weekend cardGothenburg: Peak/off-peak season tickets

  • England:Off-peak saver tickets in most of England

  • US:Rebated off-peak day and season tickets


Surcharge on higher standard modes

Oslo airport access:

Surcharge on higher standard modes


Surcharge on other quality

Aircondition: Singapore

Express bus: US

Surcharge on other quality


Rebated presale

Rebated presale


Hong kong

Hong Kong

  • No season tickets!

    Campaigns:

  • Go via selected metro stations and have HK$2 paid back to you Octopus card

  • Make 10 trips within a week and get one trip free

  • Rebates if you start your journey before the morning peak

    Souvenir tickets 


Summary

Summary

  • Low subsidies necessitate price differentiation to maintain service levels

  • General fare increases are not efficient and cause unnecessary passenger loss

  • Efficient cost recovery: Fares reflect MC and WTP/elasticities (=Ramsey pricing)

  • It is possible! But need to know market and costs


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