Price Simplification

Price Simplification

In all economic measures, prices drive consumer choices. Essentially, the market demand surges with price simplification. The demand curve clearly exposes the existing correlation between the buyer’s willingness to make purchases and the pricing. In fact, the demand construction indicates the benefits that consumers derive from simplified pricing, hence defining the consumer choice theory.

In the case of simplification of fare integration in transit networks, the firm will realize an increase in revenue as passengers are satisfied. Varian (873) argues that price simplification leads to observed modal shift because of increased patronage, minimized transaction, and lower administrative costs (Nassi et al. 52). Most importantly, the fraudulent deeds will reduce dramatically because of increased social benefits and the acquisition of useful data on the passenger behaviour. In addition, the company can utilize such data to enable proper network planning to guarantee the reliability of their services (Lee et al. 7).

In London, the National Rail Train Operating Companies manage the city’s heavy rail services. To simplify pricing, the authority introduced a Travelcard in the year 2005 (Sharaby and Yoram 64). It has a concentric ring fare structure as per the zone coverage. The analysis of this project isolated the impact of fares integration because it eliminated the approximate market impact of fare fluctuation. Resultantly, it was clear that the ridership in London transit network increased by 16% between 2005 and 2012.

In Madrid and Berlin, Reinhold’s (4) quantitative research on fares integration reveals that the passenger’s social welfare improved with increased convenience in public transport usage and ticket purchase. The stations recorded higher customer satisfaction levels due to savings from ticket prices. Similarly, the majority of the interviewed travellers in the State of Maryland, USA confirmed that the simplified and integrated fare structures eliminated the ambiguity often associated with ticket purchases. 

References

Lee, Young-Jae, and Vukan R. Vuchic. "Transit Network Design with Variable Demand." Journal of Transportation Engineering 131.1 (2011): 1-10.

Nassi, Carlos David, and Fabiene Cristina de Carvalho da Costa. "Use of the Analytic Hierarchy Process to Evaluate Transit Fare System." Research in Transportation Economics 36.1 (2012): 50-62.

Reinhold, Tom. "More Passengers and Reduced Costs—the Optimization of the Berlin Public Transport Network." Journal of Public Transportation 11.3 (2012): 4.

Sharaby, Nir, and Yoram Shiftan. "The Impact of Fare Integration on Travel Behaviour and Transit Ridership." Transport Policy 21 (2012): 63-70.

Varian, Hal R. "Price Discrimination and Social Welfare." The American Economic Review 75.4 (2015): 870-875.