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A Monopolist in Public Transport: Undersupply or Oversupply?

Author

Listed:
  • Vladimir A. Karamychev

    (Erasmus University Rotterdam)

  • Peran van Reeven

    (Erasmus University Rotterdam)

Abstract

A monopolist in public transport may oversupply frequency relative to the social optimum, as van Reeven (2008) demonstrates with homogeneous consumers. This result generalizes for heterogeneous consumers who know the timetable. Whether a monopolist oversupplies or undersupplies frequency depends on the degree of consumers’ heterogeneity as reflected in the distribution of consumers’ reservation prices. Oversupply is likely to occur when this distribution is peaked, and undersupply is likely to occur when this distribution is rather flat. In particular, monopoly production results in the oversupply of frequency when consumers’ reservation prices are concentrated around the entry costs of the private car, being the main alternative to public transport.

Suggested Citation

  • Vladimir A. Karamychev & Peran van Reeven, 2009. "A Monopolist in Public Transport: Undersupply or Oversupply?," Tinbergen Institute Discussion Papers 09-077/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20090077
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    References listed on IDEAS

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    1. 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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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Frequency oversupply; Mohring effect; transportation monopolist;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

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