Policy analysis of third party electronic coupons for public transit fares

Mobile technologies are generating new business models for urban transport systems, as is evident from recent startups cropping up from the private sector. Public transport systems can make more use of mobile technologies than just for measuring system performance, improving boarding times, or for analyzing travel patterns. A new transaction model is proposed for public transport systems where travelers are allowed to pre-book their fares and trade that demand information to private firms. In this public-private partnership model, fare revenue management is outsourced to third party private firms such as big box retail or large planned events (such as sports stadiums and theme parks), who can issue electronic coupons to travelers to subsidize their fares. This e-coupon pricing model is analyzed using marginal cost theory for the transit service and shown to be quite effective for monopolistic coupon rights, particularly for demand responsive transit systems that feature high cost fares, non-commute travel purposes, and a closed access system with existing pre-booking requirements. However, oligopolistic scenarios analyzed using game theory and network economics suggest that public transport agencies need to take extreme care in planning and implementing such a policy. Otherwise, they risk pushing an equivalent tax on private firms or disrupting the urban economy and real estate values while increasing ridership.