Daily Archives: October 4, 2007

Relative Price of Travel

If I tell someone in Pune that you would require to pay 30% more for a bus ride to Mumbai than driving his or her own car on the beautiful expressway, I will be written off as a jerk! And here I am, doing exactly the same thing when I ride the Bonanza Lines to NY City from Storrs.

Let me back up with some figures. NY City is around 145 miles from Storrs. On an average I would have to pay $60 for a round trip ticket on a bus. Whereas if I drive a car with 30 mpg yield I require 10 gallons of gas costing around $30. Add a toll of $5 and the total comes to $35. If the mileage drops then the cost will go up. However, I am assuming that by now we are sane enough to realize that the Japanese are better at making cars! So there it is. I actually pay more than 30% for a bus ride than a ride in a car. In India, a bus ride will cost me less than half of what it would cost to drive a car for the given distance.

This is one of the many conundrums that intrigue me when I compare things back home with that in US. So the million dollar question is how de we reason out this seeming anomaly. Riding a public or a shared vehicle should cost me less than the fancy ride in ones own air-conditioned car. There are economies of scale when it comes to public transport and hence should be cheaper. At least in India that’s hard nosed common sense. But it turns out that common sense is after all indeed not common. It is context specific.

One needs to pry a bit deeper to see the contextual reason in this. An important factor is of course competition. If I take the case of market for travel from Pune to Mumbai (approximately 110 miles apart form each other) there is much more competition than in the market for travel between Storrs to NY city. You have the State rail and road transport, a multitude of private bus operators, cab service and so on. There is a range of service available depending on how deep you want to go in your pockets. This is certainly not the case here. You have a lone Bonanza or Greyhound providing public intercity transportation or you are on your own.

Is this monopoly enough to generate such opposing differentials? May or may not be. However, one can certainly think of some additional factors.

For e.g. owning a car is a much common thing in US than it is in India. People can also afford to place much more value on time and convenience. So a person riding a bus constitutes an anomaly in US. He or she will be charged more exactly for being that and constituting an inelastic demand. This is certainly not the case in India.

For a variety of reasons owning a car is not as common as in US and driving longer distances is even less so. Hence a person choosing to ride a bus is not an anomaly. He is not relatively disadvantaged because he does not have an access to a car ride. It’s a common way of travelling and being relatively poor, people tend to place a lower value on time and convenience.

The cheaper state transport in India also works well to keep the market competitively priced. The presence of the state probably works as in the contestable markets theory.

Can think of any more factors? As they say, take your pick!


Filed under India-US: Some Conundrums