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The Influence of Travel Distance and Transport Operators' Objectives on Fares, Transport Quality and Generalised Transport Costs

Author

Listed:
  • Finn Jørgensen
  • Pål Andreas Pedersen

Abstract

A theoretical model is adopted in order to examine optimal fare and optimal quality of supply schemes for a transport operator. The analysis shows how fares and quality of supply are related to travel distance and to the transport operator's weight on profit versus consumer surplus. Under reasonable assumptions imposed on the actual functions, it is found that the more weight the operator gives to profits, the higher the fare level and the higher the generalised travel costs. How the operator's objectives influence the quality of transport and how travelling distance affects fares, quality of transport and generalised travel costs are ambiguous, and depend on the initial restrictions placed on the actual functions. The paper then investigates how different additional restrictions imposed upon the functions influence the results. The paper also examines the special case in which the quality of transport is exogenous to the transport operator. One important result then is that higher demands towards the transport operator regarding the quality of the transport supply do not necessarily reduce the transport users' generalised travel costs.

Suggested Citation

  • Finn Jørgensen & Pål Andreas Pedersen, 2001. "The Influence of Travel Distance and Transport Operators' Objectives on Fares, Transport Quality and Generalised Transport Costs," Studies in Economics 0104, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:0104
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    References listed on IDEAS

    as
    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.
    2. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-283, June.
    3. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
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    More about this item

    Keywords

    Travel distance; operators' objectives; optimal fare; optimal quality; generalised costs;
    All these keywords.

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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