Fares and tolls in a competitive system with transit and highway: The case with two groups of commuters

This paper deals with pricing and modal split in a competitive mass transit/highway system with heterogeneous commuters. Two groups of commuters that differ in their disutility from travel time, schedule delay and transit crowding, select the transit or auto mode for traveling from a residential area to a workplace. We compare three pricing schemes: the marginal cost-based transit fare with no-toll (called ‘m’ for short), the average cost-based fare with no-toll (‘a’) and marginal cost-based fare with time-invariant toll for subsidizing transit (‘s’), and derive a socially optimal combination of transit fare and road toll which minimizes the total social cost of the competitive system meanwhile ensuring no deficit to the transit side (‘o’). The main findings from the analytical and numerical results are: (1) the ‘o’ policy generates the most total transit usage, then ‘s’, ‘m’ and ‘a’ in order; (2) the total usage of each mode is independent of the demand composition when group 1 uses both modes; (3) the group 2's aversion to transit crowding does not affect total transit usage; (4) group 2 has relatively larger welfare gains from some changes in pricing policy, such as changing ‘m’ to ‘s’ or to ‘o’; (5) the ‘a’-policy results in the highest total social cost, then ‘m’, ‘s’ and ‘o’ in that order.