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Sorry, Peak Pricing is Not Market-Pricing for Transit

Samuel Staley
June 28, 2011, 8:53am

Blogger David Alpert called my op-ed in the Washington Post arguing for market-based pricing for Washington, D.C.'s subway fares "ignorant," claiming that Metro has already has this in place because it has instituted Peak-On-Peak pricing. I wish Mr. Alpert had read the op-ed more thoroughly. If he had, he would have realized that peak pricing as Metro has instituted is not the pricing I recommend or the kind of pricing that's in place right now. I wrote in part:

"While a near real-time pricing system might be theoretically preferable, it would be more practical to adjust fares based on the hour or route traveled. This is the strategy used by Southern California’s pioneering toll roads that guarantees 65 mph speeds 24 hours a day. The key is to set fare levels to ensure reliable and high-level service.

"This pricing strategy has the advantages of reducing stress on the system by matching equipment with the appropriate levels of demand, generating higher revenue to offset operating costs in the near term, allowing consumers to identify the highest value added along the Metro line and establishing a sustainable revenue stream."

I argue for consumer demand driven pricing both to maximize revenues and manage the system more efficientl. In short, prices (fares) should be set at market-clearing levels.

What does this mean in the context of transit? Prices should be set high enough Metro cars (and routes) are not congested--ever. Anyone who has ridden the Metro recently knows this isn't the case. I ride Metro frequently, and have missed 2-3 trains during peak morning hours because they were simply too full to pack me in.

But, more to the point, the pricing I recommend is fundamentally about guaranteeing a level of service at a price the market is willing to bear. That's obviously much higher than the current rate. More importantly, it needs to vary by route and hour of the day. I specifically cite the 91 Express Lanes in Orange County, California, because they set toll rates by the hour to guarantee free flow travel at 65 mph hour, 7 days a weeks, 24 hours a day. This policy implicitly means that the lanes have 48 separate toll rates (24 east bound and 24 west bound) that are set based on travel demand. (In practice, toll rates are the same in several hours, but they are still set seperately to ensure the targeted Level of Service.) That's not what Metro has in place now. Off Peak, Peak, and Peak-On-Peak fares represent three rates that are largely divorced from level of service and set for the entire system.

This distinction is conceptual, not semantic. Metro still has not embraced the concept of consumer driven pricing--setting prices based on willingness to pay. The Peak-On-Peak price is really still about revenue generation for Metro, not system management. Until this changes, Metro will still be leaving revenues on the rails and its long term financial viability will remain contingent on the generosity of taxpayers and the federal government.


Samuel Staley is Research Fellow


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