On competition and product differentiation in urban transportation: the

This article considers Cournot-like competition among two public transit oligopolists (a rapid-rail system modeled on the Bay Area's BART, and a parallel bus system) in the presence ofa competitively supplied third alternative. The oligopolists compete in both service quality and price, anddo so myopically. With demand and cost data from the Bay Area numerically estimated equilibria are obtained and studied. The results indicate that: (I) withfares and product characteristics freely variable, neither mode need operate at a loss; (2) the rapidrail mode can cover costs from the farebox even if the bus mode offers moneylosing service; (3) the equilibria exhibit product differentiation, in sharp con? trast to the presently observed situation.