Relationships between fares, trip length and market competition

This paper analyses equilibrium fares that arise from Collusion, Cournot, Stackelberg, Bertrand and Sequential Price Competition when two profit maximising transport firms produce symmetrically differentiable services and have identical costs. Special focus is placed on how different equilibrium fares are linked to trip length. Higher operator costs and higher demand from the authorities regarding the quality of transport supply result in steeper relationships (larger rate of change) between all fares and travel distance. Also, a higher degree of substitutability between the services will in most cases make these relationships steeper. The competitive situation has less influence on fares, both absolutely and relatively, the longer routes the operators compete on.

► More intense competition between transport firms will decrease fares.
► Fare will not necessarily increase with travel distance.
► Less intense competition makes it more likely that fares decrease with distance.
► The differences between equilibrium fares decrease with distance.
► Higher passenger time cost and operator cost reduce differences in equilibrium fares.