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Relationships between fares, trip length and market competition

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  • Clark, Derek J.
  • Jørgensen, Finn
  • Mathisen, Terje Andreas
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    Abstract

    This paper analyses equilibrium fares that arise from Collusion, Cournot, Stackelberg, Bertrand and Sequential Price Competition when two profit maximising transport firms produce symmetrically differentiable services and have identical costs. Special focus is placed on how different equilibrium fares are linked to trip length. Higher operator costs and higher demand from the authorities regarding the quality of transport supply result in steeper relationships (larger rate of change) between all fares and travel distance. Also, a higher degree of substitutability between the services will in most cases make these relationships steeper. The competitive situation has less influence on fares, both absolutely and relatively, the longer routes the operators compete on.

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part A: Policy and Practice.

    Volume (Year): 45 (2011)
    Issue (Month): 7 (August)
    Pages: 611-624

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    Handle: RePEc:eee:transa:v:45:y:2011:i:7:p:611-624

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    Related research

    Keywords: Optimal fares Trip length Competitive situation;

    References

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    1. Derek J. Clark & Finn Jørgensen & Pål A. Pedersen, 2009. "Strategic Interactions between Transport Operators with Several Goals," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 43(3), pages 385-403, September.
    2. Finn Jørgensen & John Preston, 2007. "The Relationship Between Fare and Travel Distance," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 41(3), pages 451-468, September.
    3. Helge Sanner, 2007. "Bertrand Competition Can Yield Higher Prices Than Monopoly," Bulletin of Economic Research, Wiley Blackwell, vol. 59(3), pages 247-254, 07.
    4. Salvanes, K.G. & Steen, F. & Sorgard, L., 1998. "Collude, Compete, or Both? Deregulation in the Norwegian Airline Industry," Papers 18/98, Norwegian School of Economics and Business Administration-.
    5. Häckner, Jonas, 1999. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Research Papers in Economics 1999:9, Stockholm University, Department of Economics.
    6. Paulley, Neil & Balcombe, Richard & Mackett, Roger & Titheridge, Helena & Preston, John & Wardman, Mark & Shires, Jeremy & White, Peter, 2006. "The demand for public transport: The effects of fares, quality of service, income and car ownership," Transport Policy, Elsevier, vol. 13(4), pages 295-306, July.
    7. Jørgensen, Finn & Pedersen, Hassa & Solvoll, Gisle, 2004. "Ramsey pricing in practice: the case of the Norwegian ferries," Transport Policy, Elsevier, vol. 11(3), pages 205-214, July.
    8. Banister, David & Berechman, Joseph & De Rus, Gines, 1992. "Competitive regimes within the European bus industry: Theory and practice," Transportation Research Part A: Policy and Practice, Elsevier, vol. 26(2), pages 167-178, March.
    9. Nash, C A, 1993. "British Bus Deregulation," Economic Journal, Royal Economic Society, vol. 103(419), pages 1042-49, July.
    10. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    11. Hensher, David A. & Stanley, John, 2003. "Performance-based quality contracts in bus service provision," Transportation Research Part A: Policy and Practice, Elsevier, vol. 37(6), pages 519-538, July.
    12. Jørgensen, Finn & Pedersen, Pål Andreas, 2004. "Travel distance and optimal transport policy," Transportation Research Part B: Methodological, Elsevier, vol. 38(5), pages 415-430, June.
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    Cited by:
    1. Clark, Derek John & Jørgensen, Finn & Mathisen, Terje Andreas, 2014. "Competition in complementary transport services," Transportation Research Part B: Methodological, Elsevier, vol. 60(C), pages 146-159.
    2. Socorro, M. Pilar & Viecens, M. Fernanda, 2013. "The effects of airline and high speed train integration," Transportation Research Part A: Policy and Practice, Elsevier, vol. 49(C), pages 160-177.

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