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Salience in a simple transport market

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  • Clark, Derek J.
  • Mathisen, Terje Andreas

Abstract

Psychologists have long since recognized that consumers have limited cognitive ability, and that this prevents them from weighing up all product attributes when making a choice. More recently, a new framework for consumer choice has been developed which takes account of this, by assuming that consumers are drawn to salient features of a product. We apply the framework of salient thinking to a simple transport market in which passengers may attach different weights to the utility of the trip (its comfort and/or duration) and the fare. We find the optimal fare structure in this market, and investigate under which conditions operators use their pricing schedule to focus passengers’ attention on fare, and when they direct attention towards trip duration or comfort. Furthermore, we address the quality investments made by operators compared to a rational benchmark. Quality enhancement in this model is increasing in the unit cost of providing the service. We finally discuss the implications of the theory of consumer choice, and the competitive model for transport markets compared to the predictions of a rational model. This leads to several testable situations which could give implications for policy makers and transport firms.

Suggested Citation

  • Clark, Derek J. & Mathisen, Terje Andreas, 2020. "Salience in a simple transport market," Research in Transportation Economics, Elsevier, vol. 82(C).
  • Handle: RePEc:eee:retrec:v:82:y:2020:i:c:s0739885920300743
    DOI: 10.1016/j.retrec.2020.100876
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    More about this item

    Keywords

    Optimal fares; Trip duration; Transport quality enhancement; Salient attributes; Passenger rationality;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General

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