Transport economics Why is transport important?
Perfect discrimination involves separating out each consumer and finding out what they are willing to pay for the product
Download 4.92 Mb.
|
- Navigate this page:
- Transport applications of price discrimination One of the most important features of transport is peaked-demand
- Transport costs and pricing
Perfect discrimination involves separating out each consumer and finding out what they are willing to pay for the product In this way – consumer surplus can be extracted and turned into revenue Here the firm charges three different prices to different consumers. Total revenue is equal to the area of the three rectangles (0P3 x 0Q3 + 0P1 x Q1-Q3 etc). Any single price reduces revenue and in natural monopoly means a loss. The key element here is that each consumer, or group of consumers, must not only be prepared to pay different prices, but they must not be able to trade with each other. Thus the person paying price 0P2 must not be able to resell their ticket to someone prepared to pay 0P3. Transport applications of price discrimination One of the most important features of transport is peaked-demand. For trains and busses there are times of day when demand peaks, for airlines there are times of year when demand is much higher than normal. It is possible to price higher during times of peaked demand. This is both profit maximizing and, in the case of rail and busses, a way of smoothing the peaks in demand by persuading people to travel at different times. 
The problem transport industries face is a strict limit on supply. The firms have so many busses and aircraft and so much capacity on a railway line. Once demand exceeds this capacity there is nothing they can do in the short-run (and that can be a long time!). However there is spare capacity at off-peak times. If the firm charged just one price they would find demand was very low in off-peak times. Therefore they charge less then, whilst still equating MC to MR, maximizing profits in both periods. The real transport situation is more complex than the diagram suggests. Airlines charge many prices on the same flight making it essential you never ask the person next to you how much they paid – someone will be upset and it ruins the movie. The discrimination works because there are strict times when tickets are valid, or in the case of airlines named, non-transferrable, tickets. Technically to discriminate there must also be different PED’s in each market ‘segment’. Price discrimination in this sense is almost unavoidable in transport. Capacity constraints demand it. However some people would be concerned if transport was entirely profit driven and unregulated when contestability was weak as consumer surplus will be eroded considerably. Examples of price discrimination British Rail: Young persons railcard, senior citizens railcard. Peak tickets for travel before 9am, weekend and ‘supersaver’ tickets. British Airways: Up to 60 different fares charged on the same flight.
Private costs - the direct costs of using transport to the person consuming the service e.g. the fare on the bus or the fuel and running costs of a car. External costs - the costs imposed on others by the private consumption of transport, e.g. noise, pollution and accidents. Together private costs and external costs yield the total social cost of transport. Costs in transport are very unusual because of the nature of transport. The non-storable nature of transport services and the different methods of providing and financing infrastructure and moving units in each mode of transport make it a more complicated matter than for most industries. A transport service provider faces very different types of costs to the user of private transport, leading to very different decisions. Further the costs faced by users are not always the total costs of transport. The optimal allocation of resources occurs where marginal social cost is equal to marginal social benefit. This is shown in the diagram below. 
If there are no external costs then the market will clear at quantity 0Q1 and this will represent an optimal (allocatively efficient) allocation of resources. In the case of transport this optimum does not occur in free markets because external costs do exist. In the diagram, assuming that the private marginal benefit is the same as marginal social benefit, the market would provide output 0Q1, but marginal social cost would exceed marginal social benefit. The optimal allocation of resources occurs at 0Q* where MSC = MSB. This suggests that there is a case for government intervention in transport markets. Directory: files -> quia -> users users -> L y aura un quiz sur le vocabulaire users -> 007. Explain and demonstrate basic cad commands and techniques users -> Vocabulary review users -> Three Approaches to Defining Jazz Mark Gridley, Robert Maxham and Robert Hoff Copyright 1989 by Oxford University Press users -> Inventions and Inventors Web Quest Introduction users -> How do we handle these contacts? users -> A brief History of the Personal Computer users -> Lecture #13 the civil war from The Election of Lincoln to the Surrender at Appomattox Election of 1860 users -> Hours: 05 Term: Winter/Spring 2005 Days users -> Ch. 1 Thinking Geographically Download 4.92 Mb. Share with your friends:
|