Abstract
This paper studies how the price affects the demand for public transport in the peak- and off-peak period in the public transport in Stockholm. Further, the study investigates how differences in price elasticities of demand in the peak- and off-peak period can enable an increase in revenues as well as the total number of passengers while dampening the peak-load problem through price discrimination. The data is set up to examine the effect of the price on the number of passengers travelling by subway from January 1999 to December 2008. A number of control variables are used to isolate the effect of a price change in our econometric model. Thereafter, the elasticities of demand for each period are calculated in order to find Ramsey prices that can be used when a monopoly firm maximizes profit and minimizes the welfare loss. The study concludes that the price elasticities of demand differ between the peak- and the off-peak period and that SL should charge a higher price in the peak-period and a lower price in the off-peak period to both increase their revenue, the total number of passengers, and reduce their problems associated with the peak-load demand.
Highlights
The demand for public transport varies greatly over the course of a day
These variations in demand over the 24 hours of the day leads to peak-load problems; the service provider has to invest in enough capacity to satisfy the peak-load demand, but these investments are not utilized when the demand drops
There is a cost of congestion if the capacity of the service provider is below the level that accommodates peak demand, as well as environmental costs caused by the congestion. (Boiteux, 1960)
Summary
Most commuters travel during rush hours in the morning and the evening, while there is significantly less passengers during day and night time These variations in demand over the 24 hours of the day leads to peak-load problems; the service provider has to invest in enough capacity to satisfy the peak-load demand, but these investments are not utilized when the demand drops. Hotels offer discounts on stays during off-season periods, and airline tickets are discounted when the demand is low This attempt is seldom made in urban transportation, causing significant welfare losses, as pointed out by Vickrey (1963) already half a century ago:. The other half is tax financed in the form of contributions from the County Council (Stockholm Public Transport, 2009). The general tendency in the last years has been towards a lower tax funding level, see Figure 1
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