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Targeted policy design in transportation: the case of the ferry market

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Author Info

  • Angela Stefania Bergantino

    ()
    (Università degli Studi di Bari "Aldo Moro" (DiSAG))

  • Billette de Villemeur, Etienne
  • Vinella, Annalisa

    (Università degli Studi di Bari "Aldo Moro" (DiSAG))

Abstract

We model a ferry market where passengers are heterogeneous in their valuation of waiting time and, unlike in previous studies, can take services from all operators. Analyzing their behavior when two operators are active, each providing one service, we find that complex patterns of product differentiation emerge between two goods that (i) do not exactly correspond to the available services and (ii) display service frequencies as quality attributes. A (low-quality) basic good, coinciding with the cheaper service, attracts low-time-value passengers. A (high-quality) composite good, which is a bundle of the two available services, appeals to high-time-value passengers. Consequently, demand is positive for either operator so that an inefficient operator is not crowded out. In the specific case of a mixed duopoly, a price-aggressive public operator spans discipline over (but does not monopolize) the whole market; a soft one boosts "quality" (i.e., frequency) vis-à-vis fraction of the population only, that is yet larger than under classical vertical differentiation. Policy-makers pursuing redistribution objectives should target the cheaper service, in general, privileging either a raise in its frequency (when it is low) or a cut in its price (when frequency is high), depending upon the group of passengers they wish to support.

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Bibliographic Info

Paper provided by SIET Società Italiana di Economia dei Trasporti e della Logistica in its series Working Papers with number 1205.

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Length: 30 pages
Date of creation: 2012
Date of revision: 2012
Handle: RePEc:sit:wpaper:12_05

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Related research

Keywords: Ferry market; Price and frequency; Time value; Passenger allotment; Product differentiation; Redistribution;

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References

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  1. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Yang, Hai & Yan Kong, Hoi & Meng, Qiang, 2001. "Value-of-time distributions and competitive bus services," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 37(6), pages 411-424, December.
  3. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
  4. Lorenz NETT, 1993. "Mixed Oligopoly With Homogeneous Goods," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 64(3), pages 367-393, 07.
  5. Acutt, MZ & Dodgson, JS, 1995. "Cross-elasticities of demand for travel," Transport Policy, Elsevier, vol. 2(4), pages 271-277, October.
  6. Billette de Villemeur, Etienne, 2004. "Regulation in the air: price-and-frequency caps," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(6), pages 465-476, November.
  7. Angela S. Bergantino & Etienne Billette De Villemeur & Annalisa Vinella, 2011. "Partial Regulation in Vertically Differentiated Industries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(2), pages 255-287, 04.
  8. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
  9. Mohring, Herbert & Schroeter, John R. & Wiboonchutikula, Paitoon, 1987. "The Values of Waiting Time, Travel Time, and a Seat on a Bus," Staff General Research Papers 11117, Iowa State University, Department of Economics.
  10. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November.
  11. Peran van Reeven, 2008. "Subsidisation of Urban Public Transport and the Mohring Effect," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 42(2), pages 349-359, May.
  12. Leurent, Fabien, 1993. "Cost versus time equilibrium over a network," European Journal of Operational Research, Elsevier, vol. 71(2), pages 205-221, December.
  13. Mohring, Herbert, 1972. "Optimization and Scale Economies in Urban Bus Transportation," American Economic Review, American Economic Association, vol. 62(4), pages 591-604, September.
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