Price Differentiation and Fare Integration in Urban Public Transport



Price Differentiation and Fare Integration in Urban Public Transport

Authors

P Hodson, EU Commission, INT

Description

Abstract

The optimal pricing of local public transport is much debated. Debate concerns both the level and the structure of prices. This paper focuses on price structure.

Decisions about price structure might have different objectives: for example to maximise profit; to maximise ridership within a budget constraint; or to maximise some measure of social welfare. Whatever the objective, there is in academic and professional circles little consensus on the price structure which is optimal. Two kinds of price reform are commonly discussed:

- price discrimination, capitalising on the differing willingness to pay of different users (often advocated by economists);

- tariff integration, offering users a seamless service and removing penalties for transfer between services or operators (often advocated by transport professionals).

To complement the theory-led character of these debates, this paper will contribute empirical evidence.

It asks three questions:

1) Across European cities, how widespread is the use of price discrimination and tariff integration?

2) What regulatory arrangements and institutional factors (types of competition, types of authority, ownership of operators, division of roles between operator and authority) seem to favour increased use of price discrimination and tariff integration?

3) Do price discrimination and tariff integration tend to complement each other, or are there trade-offs between them? (A complementary relationship might be expected if both these pricing practices require the use of a high level of transport planning skills which is not present in all systems. A tension might be expected if the tendency of integrated systems to impose a common price across routes and operators is in conflict with the diversity that price discrimination creates.)

Empirical data that permits detailed cross-city comparison of public transport price structures is scarce. This paper draws on a new database of public transport supply and demand that will cover about 150 major European cities. This data permits the construction of indicators of price discrimination between:

- short and long trips;
- peak and off-peak travel;
- trips to the city centre and others;
- prices for regular and occasional travellers;
- prices for working-age passengers, young people and elderly people;

and of tariff integration between:

- urban services provided by a single operator ('internal integration');
- urban services provided by different operators ('urban integration');
- urban and regional services ('regional integration').

Exploratory work with data from 45 cities suggests that the following relationships may hold:

- prices may vary more with distance, and offpeak discounts may be commoner, where operators have a role in fixing prices;

- if authorities fix prices, integration may be higher under competition;

- if operators fix prices, integration may be lower under competition;

- systems with a lower level of internal integration may tend to offer higher discounts for working-age passengers who are regular travellers.

This is the type of relationship that this paper will examine, in detail and with data from more cities.

Publisher

Association for European Transport