A Monopolist in Public Transport: Undersupply or Oversupply?
A monopolist in public transport may oversupply frequency relative to the social optimum, as van Reeven (2008) demonstrates with homogeneous consumers. This result generalizes for heterogeneous consumers who know the timetable. Whether a monopolist oversupplies or undersupplies frequency depends on the degree of consumers’ heterogeneity as reflected in the distribution of consumers’ reservation prices. Oversupply is likely to occur when this distribution is peaked, and undersupply is likely to occur when this distribution is rather flat. In particular, monopoly production results in the oversupply of frequency when consumers’ reservation prices are concentrated around the entry costs of the private car, being the main alternative to public transport.
|Keywords||Mohring effect, frequency oversupply, transportation monopolist|
|JEL||Monopoly (jel D42), Monopoly; Monopolization Strategies (jel L12), Transportation: General (jel L91)|
Karamychev, V.A, & van Reeven, P.A. (2009). A Monopolist in Public Transport: Undersupply or Oversupply? (No. TI 2009-077/1). Discussion paper / Tinbergen Institute. Tinbergen Institute. Retrieved from http://hdl.handle.net/1765/16811