A Monopolist in Public Transport: Undersupply or Oversupply?

22 Pages Posted: 28 Aug 2009

See all articles by Vladimir A. Karamychev

Vladimir A. Karamychev

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Peran van Reeven

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Tinbergen Institute

Date Written: August 27, 2009

Abstract

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: Frequency oversupply, Mohring effect, transportation monopolist

JEL Classification: D42, L12, L91

Suggested Citation

Karamychev, Vladimir A. and van Reeven, Peran, A Monopolist in Public Transport: Undersupply or Oversupply? (August 27, 2009). Available at SSRN: https://ssrn.com/abstract=1462632 or http://dx.doi.org/10.2139/ssrn.1462632

Vladimir A. Karamychev (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Peran Van Reeven

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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