Peak-load pricing in Public Transport: A case study of Stockholm

Abstract: This thesis studies how the price affects the demand for public transport in the peak- and off-peak period in the public transport in Stockholm. Further, the study investigates how differences in price elasticities of demand in the peak- and off-peak period can enable an increase in revenues as well as the total number of passengers while dampening the peak-load problem through price discrimination. The data is set up to examine the effect of the price on the number of passengers travelling by subway in the peak- and off-peak period from January 1999 to December 2008. A number of control variables are used to isolate the effect of a price change. Two regressions are made; the first studies the effect of a price change in the peak-period and the second the effect of a price change in the off-peak period. Thereafter, the elasticities of demand for each period are calculated in order to find Ramsey prices that can be used when a monopoly firm maximizes profit and minimizes welfare loss. The study concludes that the price elasticities of demand differ between the peak- and the off-peak period and that SL should charge a higher price in the peak-period and a lower price in the off-peak period to both increase their revenue, the total number of passengers, and reduce their problems associated with the peak-load demand.