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Efficient pricing of urban public transport with budget constraints

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

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  1. Efficient pricing of urban public transport with budget constraints Nils FearnleyInstitute of Transport Economics, Oslo E-mail: naf@toi.no

  2. Financing public transport in Norwegian city Trondheim Operating revenue/cost

  3. 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 

  4. 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

  5. Differentiation of demand segments • OAP, student, family, military etc • Niche markets • Requires indisputable segmentation of passengers • Pricing must reflect segment’s price elasticity/WTP

  6. 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

  7. 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

  8. Is efficient pricing possible? • Rigid fare scales and political opposition? • Problems related to integrated fares between cities, transport modes, operators? • Practical implementation? Some examples 

  9. 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

  10. Oslo airport access: Surcharge on higher standard modes

  11. Aircondition: Singapore Express bus: US Surcharge on other quality

  12. Rebated presale €

  13. 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 

  14. 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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