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Optimal pricing in railway passenger transport: theory and practice in The Netherlands

  • van Vuuren, Daniel

This study tries to establish the link between the well-developed economic theory of optimal pricing, and recent empirical results concerning price elasticities of demand and marginal cost estimates for The Netherlands Railways. The ex post determination of Ramsey coefficients confirms that peak hour pricing is dominated by the aim of welfare maximization, while off-peak fares largely correspond to the profit-maximizing objective. It is argued that tariff differentiation according to track offers scope for a budget-neutral welfare improvement, and that a price-elastic off-peak market implies that lower off-peak fares result in a Pareto-improvement.

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Article provided by Elsevier in its journal Transport Policy.

Volume (Year): 9 (2002)
Issue (Month): 2 (April)
Pages: 95-106

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Handle: RePEc:eee:trapol:v:9:y:2002:i:2:p:95-106
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  1. Spence, A Michael, 1980. "Multi-Product Quantity-Dependent Prices and Profitability Constraints," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 821-41, October.
  2. Braeutigam, Ronald R., 1989. "Optimal policies for natural monopolies," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 23, pages 1289-1346 Elsevier.
  3. Robert D. Willig, 1978. "Pareto-Superior Nonlinear Outlay Schedules," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 56-69, Spring.
  4. Evans, David S & Heckman, James J, 1984. "A Test for Subadditivity of the Cost Function with an Application to the Bell System," American Economic Review, American Economic Association, vol. 74(4), pages 615-23, September.
  5. Gathon, H.-J. & Pestieau, P., . "Decomposing efficiency into its managerial and its regulatory components: The case of European railways," CORE Discussion Papers RP -1133, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Piet Rietveld & Roberto Roson, 2002. "Direction dependent prices in public transport: A good idea? The back haul pricing problem for a monopolistic public transport firm," Transportation, Springer, vol. 29(4), pages 397-417, November.
  7. Roberts, Kevin W S, 1979. "Welfare Considerations of Nonlinear Pricing," Economic Journal, Royal Economic Society, vol. 89(353), pages 66-83, March.
  8. Amrstong, Mark & Cowan, Simon & Vickers, John, 1995. "Nonlinear pricing and price cap regulation," Journal of Public Economics, Elsevier, vol. 58(1), pages 33-55, September.
  9. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
  10. Daniel Van Vuuren & Piet Rietveld, 2002. "The Off-peak Demand for Train Kilometres and Train Tickets: A Microeconometric Analysis," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 36(1), pages 49-72, January.
  11. Kessides, Ioannis N. & Willig, Robert D., 1995. "Restructuring regulation of the rail industry for the public interest," Policy Research Working Paper Series 1506, The World Bank.
  12. Katz, Michael L, 1983. "Non-Uniform Pricing, Output and Welfare under Monopoly," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 37-56, January.
  13. Goldman, M Barry & Leland, Hayne E & Sibley, David S, 1984. "Optimal Nonuniform Prices," Review of Economic Studies, Wiley Blackwell, vol. 51(2), pages 305-19, April.
  14. Srinagesh, Padmanabhan, 1986. "Nonlinear Prices and the Regulated Firm," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 51-68, February.
  15. Spence, Michael, 1977. "Nonlinear prices and welfare," Journal of Public Economics, Elsevier, vol. 8(1), pages 1-18, August.
  16. Mark Armstrong & John Vickers, 1991. "Welfare Effects of Price Discrimination by a Regulated Monopolist," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 571-581, Winter.
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