Density Economies and the Profitability of Demand Responsive Services



Density Economies and the Profitability of Demand Responsive Services

Nominated for The Neil Mansfield Award

Authors

Berrada, VEDECOM, Leurent, Universite Paris-Est

Description

The paper explores density economies for demand responsive services (DRS). We address for three configurations the issues of optimal fares and optimal fleet size. Numerical illustration is provided based on parameters suited to greater Paris.

Abstract

Demand responsive services (DRS) have emerged as promising solutions to meet mobility demand in customized ways. Car-sharing, carpooling or e-hailing assert themselves as novel kinds of public transport in modern cities. Yet, DRS solutions still have to achieve profitability: this requires developing both the utilization rate of the service means (drivers, cars…) and the service attractiveness to potential users in terms of quality and price. Among quality factors, the quick availability of a vacant car is prominent: this requires a sufficiently dense supply of available cars; then, by combination to the requirement for high utilization rates, it is required to have an even denser supply of cars in the area, which can be achieved only if the demand is sufficiently dense. To sum up, density is the key issue for DRS profitability.
This paper aims to explore economies of density for demand responsive services. It brings about a microeconomic, mathematical model of the DRS market in relation to spatial conditions. Firstly, we study a simple case of uncoordinated providers operating under perfect competition and elastic, homogeneous demand. Secondly, keeping to the assumptions on the demand, we analyze the cases of monopoly / oligopoly. Thirdly, we address demand heterogeneity on the basis of different trade-offs between quality and price. In each case, we address the two related issues of optimal fares and optimal fleet size, depending on population size, population density, values of time, travel distances, running speeds. Numerical illustration is provided, on the basis of parameters suited to greater Paris.

Publisher

Association for European Transport