Fare deregulation of transit services: Winners and losers in a competitive market

A first-order analysis of the winners and losers under various scenarios for deregulating fares charged by different modes of transport in Hong Kong. Currently, taxis and buses are regulated, while rail is free to set fares at any level. Regulation of taxis, for example, has created a large demand for black-market, unregulated cabs, which add to congestion and are an economic competitor with other modes. The three parties considered are travelers, service providers and the general public; the affected areas studied are traveler utility, operator revenue and network congestion. Multinomial logit models were used to measure these elements across eight modes of transportation (including rail lines, feeder buses, air buses, high speed ferries and taxis). The transit district involved connections between Hong Kong International Airport and the YTM district, an urban area in Kowloon West. There is no clear win-win for all parties. Deciding on a fare regulation policy is likely to involve politically painful tradeoffs. Among the broader findings: taxi services are highly elastic while bus services are highly inelastic, which suggests continuation of fare controls on buses and taxis while leaving the railroad free to set fares at any level.