Optimal pricing in railway passenger transport; Theory and practive in The Netherlands

This study tries to establish the link between the well-developed economic theory of optimal pricing, and recent empirical results concerning price elasticities of demand and marginal cost estimates for The Netherlands Railways. The ex post determination of Ramsey coefficients confirms that peak hour pricing is dominated by the aim of welfare maximization, while off-peak fares largely correspond to the profit-maximizing objective. It is argued that tariff differentiation according to track offers scope for a budget-neutral welfare improvement, and that a price-elastic off-peak market implies that lower off-peak fares result in a Pareto-improvement. © 2002 Elsevier Science Ltd. All rights reserved.