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					   Managerial Economics 205
Victoria Regional Transit System
      --Price Analysis--




         Pascal Courty




               By:
        Abhishek Kathuria
         Braden Cantelon
           Scott Peris
          Mark Golding
           Victoria Regional Transit System                Econ 205


       The Victoria Regional Transit System, which falls under B.C. Transit, offers
transportation services to the growing public in the Greater Victoria area. The
transit system caters to numerous consumers for a variety of reasons, in an
attempt to meet the increasing demands for public transportation. The transit
system is in direct competition with many other modes of transportation, which
play a crucial part in determining the pricing segments in the market. There are
various problems associated with the demand and supply of public transportation,
which helps transit officials decide which areas need improvement. Taking a look at
numerous factors of the transit system including: demand, substitutes, problems,
and ways to improve upon, allows transportation services to analyze the pricing
policy needed to be most effective.

      The demands for public transit are continuously increasing and are prevalent
at particular hours. Peak times are periods, which have high congestion of traffic
and high volumes of consumers using public transit. There are roughly 30,000 more
customers using public transit during peak times, as opposed to off-peak times. By
having more available resources at peak times and having economically efficient
resources (i.e. express buses), it makes it easier to get customers to their
destination. The demand for public transit continues to be a pressing concern, as
consumers (especially students) are being left at the bus stop due to overwhelming
volumes. As the demand for public transit increases, the transit system must
introduce new and efficient methods to meet demands.

       Although Victoria transit is essential to consumers, there are a variety of
substitutes, which compete in the transportation market. The public chooses
several modes of transportation including walking, biking, driving, public
transportation (buses), etc, based off their needs. The current demand for public
transit only makes up six percent of the total transportation mode. 80% of trips
within the city of Victoria are taken by automobiles. If consumers increased the
use of alternative modes of transportation, then in order for transit to maintain
market equilibrium, the fare fees and bus passes would increase. Due to the
numerous modes of transportation, the Victoria transit must place fare fees to be
economically efficient, altering its pricing policy according to the demand for
transit.

     The pricing policy for the Victoria Transit system, sets pricing as
economically efficient as possible, due to the high costs which public

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           Victoria Regional Transit System                  Econ 205

transportation encounters. The province of B.C, under current legislation, is paying
47% of costs for regional transit systems, some of which is funded from gas taxes
at the pump (which is a source of revenue). The remaining costs (53%) are being
raised by local governments. The Victoria transit raises their portion of money for
operating costs through fare fees, advertising revenues, and property taxes.
HandyDart (which is a service for people with disabilities), receives provincial
funding which covers two-thirds of their operating costs. A primary method which
Victoria transit uses, is renting out bus space to businesses for advertising; this
acting as a recovery costs and stimulates revenue.

      The Victoria Regional Transit System, as a market, has numerous methods in
which it segments the pricing policy. The use of transit by the public in relation to
the price is an essential factor in determining the breakdown of the individual
segments. The transit market divides the segments according to specific groups of
buyers, such as age or social standing (i.e. students). The Victoria transit system
offers different prices for public transit to different consumers.

       The transit system practices direct segment discrimination, by charging a
different incremental margin to each identifiable segment. The pricing policy
differs according to individual categories of consumers. The five main identifiable
categories include adults, seniors, college students, youth, and children (under the
age of five). Each consumer within these categories has a set fare to pay for public
transit and have varying prices according to which category that individual falls
under (see figure 1).

       The direct segments are selected based off the needs of that specific
group of buyers. College fares are due to the partnership between BC Transit and
local institutions, offering opportunities for students to get discounted prices.
Discounts also apply to youth (under 18) fares. Victoria Transit also offers family
fares, where youth twelve years and younger ride free when accompanied by a
guardian.

       Indirect segment discrimination also occurs, by structuring a choice for
buyers to earn different incremental margins from each segment. The Victoria
transit system practices indirect segment discrimination through the type of
transit passes available. Besides conventional fares, the passes are divided into 10-
punch, day, month, and pro-passes; which gives options to the individual consumer
depending on the demand for the public transit. This is targeted towards

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            Victoria Regional Transit System                  Econ 205

consumers depending on their specific needs (i.e. tourism, business, education),
which allows the buyer the option to choose. Day and month passes allows
consumers unlimited travel for that designated time period. Youth passes offers
unlimited travel for riders aged six to eighteen. The pro pass program is a
perpetual bus pass purchased at work by payroll deduction, and is now marked to all
major employers of Victoria.

      By using indirect segment discrimination, Victoria transit has control over
the time period in which the rider’s bus pass is valid (i.e. one month). The transit
system also uses bus passes (with swipe-able capabilities) to prevent buyers from
cheating the system, and having access to the public service for longer than they
have paid for. Victoria transit uses this method to regulate passes in an attempt to
satisfy the demands of varying consumers.

       If there were increases in price fares, this would have direct impact on the
number of people using public transit. Price fare variation would have differing
effects on varying consumers (i.e. adults vs. student). Consumers with higher
income have the option to select a different mode of transportation. Consumers
with lower income would seek alternative methods such as biking and walking if
fare prices increased. If this were the case, Victoria transit would be operating at
an inefficient capacity, not maximizing revenue streams. This would negatively
affect the pricing policy. Since this public service runs on a loss each year it would
inhibit economic growth. The fare price must be set at a rate in which people will
think of weighing the marginal benefit between its substitutes. Ideally buses
should be filled to capacity each time they do a route to ensure maximum revenue.
Since transit is a public service, this is unrealistic because some buses must go to
routes that may not be in high demand.

       The Victoria transit offers substantial discounts to seniors and students
primarily. The percentage of discounts which seniors and students (who are the
majority of the Victoria transit users) receive, play into the inefficiency of the
transit market. The transit system would receive a greater revenue stream if they
were not to have such great discounts. Students must pay for public transit
regardless of whether or not it will be in use. Victoria transit could reduce
discount rates to those consumers who have no choice. If an increase in price were
to occur, the expectation would be that increased revenue would outweigh any loss
of consumers.



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           Victoria Regional Transit System                 Econ 205

         The Victoria transit system is making improvements, which have direct
influence on the pricing policy in place for the public. The Victoria transit system
uses methods to increase economic efficiency (i.e. double-decker buses) and
encourage the use of public transportation. One way in which Victoria transit could
improve, is by investing in more fuel efficient buses. In doing so, the operating
costs of the transit system would decrease therefore ensuring the pricing policy
stays constant. In the short run, more fuel efficient buses would be an additional
cost, but in the long run would be more efficient, reducing variable costs on fuel.
The Victoria transit system is currently working towards changes in the system
(i.e. plans for an LRT), which would be crucial for the price breakdown in the
market.

      Further improvement to be made to the transit pricing policy, would be
increasing existing public services to the ferry dock and airport. This would
enhance the number of users and by charging an additional fee, would open up a
new market for additional revenue. Consumers ideally would switch their
preferences and use public transportation. If these buses were to stop at a couple
central locations this would reduce excess costs and ensure the bus runs on a
schedule improving their efficiency.

      The Victoria transit system is a growing public service, with increasing
demands. Given its unique market, it faces issues with efficiency and has areas
which can be improved upon. Being in competition with numerous other modes of
transportation, the Victoria transit system breaks down its pricing policy in a
manner, which correlates with its public use. It is important to recognize the
current pricing policy is subject to change, according to the many other factors
which have impact upon its operating costs.




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           Victoria Regional Transit System                Econ 205


Figure 1
                                            Categories/Segments
                               Adult  College Senior Youth      Child
                Cash            $2.50   $2.50     $1.65   $1.65   *no charge
                10-punch
                pass           $22.50   $22.50   $15.00   $15.00   *no charge
     Types of
                Day pass        $7.75    $7.75    $5.50    $5.50   *no charge
      passes

                Monthly pass   $82.50   $74.50   $49.00   $49.00   *no charge




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