Use the drop down boxes below to find resources related to this page.
Wanna Argument?
Rail Privatisation
Train prices - part of rip-off Britain?
Judging whether prices have risen or fallen under privatisation is tricky as the pricing structure has become much more complex. There are a rash of new ticket types and lot of new discounted fares available. The best discounts tend to be available from booking in advance, often by a week or more. With so many train operating companies there are anomalies, not least the case where it
was cheaper to buy three different tickets for a journey than a through ticket!
Pricing depends to a great extent on the elasticity of demand for a product. In the case of train travel there are a wide variety of users with different elasticities. People who travel at peak times for commuting or business travel will tend to have much more inelastic demand curves for train travel as they need to get to their destination for work or other reasons. An inelastic
demand curve is shown below.
If demand is inelastic then users can be charged a higher price without there being a significant fall in the level of demand. Hence higher prices for morning and afternoon rush hours and those who just turn up for a train. However, if demand is more elastic, as in the case of leisure users, prices will have to be lower if there is not to be a significant loss in demand. An elastic
demand curve is shown below.
Pricing in this way is a form of price discrimination. Price discrimination is where a firm charges a different price for the same good or service in a different market. For price discrimination to work, there has to be no leakage between markets, the markets have to have different elasticities of demand and they have to be separable in some way. In the case of train travel they are
separable by time. Users at different times have different elasticities of demand.
Another factor affecting the pricing of trains is the marginal cost of the extra user. The train operating company will be running the train, as timetabled, whether there are 2 or 200 users. Most of the cost of running the service is therefore a fixed cost, and the marginal cost of one more user is almost zero. This means that it is better to have someone on a train who has paid a
few pounds than not have them at all. That few pounds will help contribute to paying the fixed costs. This will affect the pricing strategy that the firms adopts. They may want to adopt a form of yield management like airlines such as Easyjet. This means pricing according to demand. As demand gets higher so the train ticket gets more expensive. This is why they will often offer
heavily discounted fares in advance.
Judging the reliability of the trains is equally complex, but it is worth looking carefully at how the figures for punctuality and reliability are calculated. By omitting various days and certain services, it is possible to make the figures look a little better than perhaps they are! Anyone used to analysing the figures that politicians turn out should understand how statistics can
be used to distort reality!
Back to the Argument
|
