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Monopoly, Subsidies and the Mohring Effect: A Synthesis

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  • Andrés Gómez-Lobo

Abstract

This paper provides a unifying framework to analyze whether a monopoly transit provider will under or over-supply frequency. To this end we couch the problem in term of Spence [(1975). Monopoly, quality and regulation. The Bell Journal of Economics, 6, 417-429] who analyzed the incentives to provide quality by a monopolist. We show that all of the results of a recent academic exchange discussing this topic are special cases of Spence [(1975). Monopoly, quality and regulation. The Bell Journal of Economics, 6, 417-429], albeit with an adjustment in order to take into account the cost structure of frequency provision in the case of public transport. In theory then, there are cases when a monopolist may offer optimal or above optimal levels of frequency without requiring subsidies. However, public transport is rarely provided by an unregulated monopolist. Rather, these services are usually provided either by an exclusive operator under regulated fares or by a group of competing operators, with or without fare regulation. We show that in the first case frequency will always be below the social optimal level.

Suggested Citation

  • Andrés Gómez-Lobo, 2014. "Monopoly, Subsidies and the Mohring Effect: A Synthesis," Transport Reviews, Taylor & Francis Journals, vol. 34(3), pages 297-315, May.
    • Handle: RePEc:taf:transr:v:34:y:2014:i:3:p:297-315
    DOI: 10.1080/01441647.2014.902871
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    References listed on IDEAS

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    1. De Borger, Bruno & Fosgerau, Mogens, 2012. "Information provision by regulated public transport companies," Transportation Research Part B: Methodological, Elsevier, vol. 46(4), pages 492-510.
    2. Ian W. H. Parry & Kenneth A. Small, 2009. "Should Urban Transit Subsidies Be Reduced?," American Economic Review, American Economic Association, vol. 99(3), pages 700-724, June.
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    4. Glaister, Stephen & Lewis, Davis, 1978. "An integrated fares policy for transport in London," Journal of Public Economics, Elsevier, vol. 9(3), pages 341-355, June.
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    8. repec:bla:econom:v:43:y:1976:i:17:p:127-37 is not listed on IDEAS
    9. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
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