Urban travel: Competition and pricing

Abstract

The transport problems that urban centres now face (as regard congestion, the environment and public deficits) have led to an examination of competition in the sector. Some countries have moved towards the deregulation or privatization of urban public transport, influenced by developments in the theory of contestable markets. These analyses could potentially provide a means of increasing the efficiency of public services and, hence, public transport. However, the authors do not feel that they can deal with the full extent of the problem. Particularly in urban areas, there is a need nowadays to examine the issue of competition between the passenger car and public transport, especially from the pricing angle. In France, decades of policy strongly influenced by a preference for the car have prevented this problem from being a central concern for researchers and decision-makers. The approach to the problem has mainly been centred on increasing urban supply to meet demand better. However, a failure to consider pricing, and the subsidization phenomena that can occur as a result, affects the shape of supply systems. Pricing, through its action on demand, acts on supply by increasing or reducing its potential profitability. 'Snowball' effects can, therefore, mean that slight underpricing results in the domination of one transport mode. These effects have been revealed in particular by work in the new field of network economics. The example of the Lyon conurbation shall be used to illustrate the case, which is that car travel is underpriced. The basis of the exposé will be a detailed analysis of the externalities associated with the car, i.e. the costs of car use and the revenue it raises for the community. The second part of the paper is a study of several urban travel policies in Europe (France, UK, Switzerland, Italy) to show the 'effects' of this underpricing. Where supply has followed the pressure of demand, the dominance of the car has been reinforced. However, in cities, particularly in Switzerland, where supply has been restricted, this dominance has been considerably moderated. On the other hand, it can be seen from the French example that taking strong action to improve public transport is not in itself sufficient to increase usage. Several lessons can be learnt from this work. First, it is shown, if it was still necessary to do so, that the problems of urban travel require a comprehensive and coherent approach. Modal policy must, therefore, be assessed with reference to the entire transport system. Next, in connection with the issue of regulation, it is important to consider the issue of competition in urban areas, and not only competition between public transport operators, but also (and even above all) competition within the entire system of personal and public transport. Finally, with regard to pricing, the ratchet effects that benefit the car as a result of its underpricing in urban areas need to be studied.