Market Structures and Transportation PDF

MARKET STRUCTURES Presented by : Abouharia Aya Bendani Safia Chaguiri Mariam The Connection Between Market Structures and Transportation  Market Structures Influence Transportation Systems: Market S...

MARKET STRUCTURES Presented by : Abouharia Aya Bendani Safia Chaguiri Mariam The Connection Between Market Structures and Transportation  Market Structures Influence Transportation Systems: Market Structures  The way transportation markets are organized impacts pricing, accessibility, and service quality for travelers. and Transportation  Economic Principles in Transportation:  Different market structures(such as perfect competition, monopolistic competition, and oligopolies)affect how transport providers operate and meet public needs.  Why This Link is Important:  Understanding this connection helps design policies that improve efficiency, accessibility, and fairness in transportation services.  Pure Monopoly: Case Study of ONCF Understanding Monopoly through the Example of the Moroccan Rail Sector  The Demand Curve of a Monopoly In a monopoly, the demand curve represents the total market demand for the product or service. For ONCF, the demand curve slopes downward, meaning that as ticket prices decrease, more people will choose to travel by train. A monopolist like ONCF does not have a supply curve because it chooses both the price and quantity based on profit maximization, not market prices. How Does ONCF Maximize Profit? Why is demand inelastic in a monopoly? In a monopoly, the lack of substitutes and the essential nature of the service makeONCF demand relativelyAlinelastic. Example: Boraq High-Speed Train Al Boraq offers a premium service with faster travel between Tangier and Casablanca. Businesshave !! Consumers travelers and tourists choose limited it despite high prices because of its speed and convenience, alternatives illustrating inelastic demand. so price changes have little impact on the quantity demanded. How ONCF Sets Prices ?  Monopoly pricing reduces ONCF's pricing accessibility and strategy leads to creates higher prices and inefficiency by limited excluding some accessibility for consumers, some consumers. resulting in a loss Monopoly of social welfare. Inefficiency This causes a Some consumers 'deadweight loss' are priced out, a loss of social leading to a welfare due to reduction in total less efficient market allocation of satisfaction. resources.  Problem Limited Accessibility !?  Geographical Issue: In smaller  ONCF’s railtowns like Sidi network Slimane or rural is concentrated in areasurban major in theareas, Atlas, leaving residentsrural rely on buses regions due to the lack of nearby train stations or underserved. affordable Economic Barrier:options. High ticket prices during peak times make train Thistravel limitedunaffordable accessibilityfor low-income restricts mobility populations. for work, education, and healthcare, worsening regional inequality  Public Policy to Address Limited Accessibility Infrastructure Expansion Government investment to expand ONCF’s network into underserved regions, adding new stations and routes. Example: Building rail connections to rural areas like Errachidia to Tata to improve accessibility. Expected Outcome -> Improves regional connectivity, boosts economic opportunities, and reduces inequalities in transportation access. Problem of the solution (Behavioral Perspective):​ Problematic Reaction: Citizens may resist using subsidized rail services due to entrenched habits or mistrust in government programs. Example: Many rural residents may continue relying on buses or private cars even if rail services are available and affordable. Behavioral Solutions (Using Behavioral Science) Nudge with Simplified Communication Use visual and easy-to-understand campaigns (example: posters and ads) to inform residents about the new routes, ticket prices, and benefits of rail services. Incentivize Trial Usage Offer initial free or heavily discounted tickets for residents in underserved areas to encourage trial of rail services. Example: Provide a 'first month free' program for the new routes to break habits and create a positive experience. Are Air transport companies in What isananexample Morocco oligopoly of an? oligopoly ? Few dominant firms: small number of large companies vs many small firms. The airline industry has significant barriers to entry. High Explicit Market power: RAM has The capital market collusion substantial investment ismarket concentrated, = illegalin power. aircraft + with a few dominant infrastructure + operational Highlyset prices and influence interdependence demand. systems. Implicit firms, limitedespecially Due to collusion can occur. competition, Royal dueAir (RAM Maroc, can to the holding set number limited higherofprices players)and dictate The actions of one airline, particularly RAM, directly influence the Barriers toStrict In the service entry: highsignificant airline industry, offerings, startup regulatory market orfirms especially costs power. strict requirements, like RAM where oncompliance routes regulations. maywith align their pricing low-cost carriersaviation international are strategies of not others in the market. strategies absent. agreements) many (even … smalldirect without firms communication), < few large players (base prices, Advertising Interdependence: actions campaigns launched of one firm (e.g., by RAMadvertising price changes, can trigger similar will likely campaigns) surcharges,  High financialor and service fees). barriers protect existing players and limit regulatory newcampaigns from competitors… influence Price the coordination could occur implicitly on certain routes where others. competition. RAM and other airlines prefer to avoid competition. Potential for collusion: collaboration, either implicitly or explicitly, to set prices or output levels, which can lead to higher prices or reduced competition (though collusion is often illegal in many jurisdictions).  Price Competition (Bertrand Model). Quantity Competition (Cournot Model). Collusion Risk. Product Differentiation. Overview of the Bertrand Model Assumptions: 1.There are at least two firms competing by setting prices. 2.Products or services offered are homogeneous (similar quality perceived by consumers). 3.Consumers always choose the lowest-priced option. 4.Firms can produce enough to meet demand at any price. Key Predictions: Price Cutting: Firms compete by continuously undercutting each other until prices fall to the level of marginal cost (where profit is zero). Price Wars: price wars are common as firms aggressively try to capture market share. Overview of Overview of the theCournot CournotModel Model Assumptions: 1.There are at least two firms in the market. 2.Firms decide how much quantity to produce simultaneously. 3.The market price is determined by the total quantity supplied by all firms (demand curve influences price). 4.Firms aim to maximize profit, knowing that their production decision affects market prices. Quantity Competition (Cournot Model): Overview of itthe Let’s apply onCollusion RAM ! Risk Collusion occurs when companies collaborate—explicitly or implicitly—to reduce competition, often by fixing prices, controlling market output, or dividing markets. Price-Fixing Market Sharing Output Limitation Tacit Collusion Barriers to Entry Overview of Product Let’s apply it on RAM Differentiation: Unlike other oligopolistic markets, RAM distinguishes itself through service In a competitive market,offerings firms usesuch as differentiation product premium to seating, distinguish their offerings from in-flight meals, competitors, eitherand through unique features, better quality, enhanced accessservices, or branding. This helps to a broader build customer loyalty and reduces price international sensitivity, network viaallowing firms to gain a competitive edge.codeshare agreements.  Main points to remember : Few dominant firms Market power. Interdependance Price cutting and Price War Product differenciation Problem High ticket prices for consumers. Limited choices in flight routes and services. Barriers to entry that prevent smaller or low-cost carriers from competing effectively. Story of Rayanair, a policy for Addressing Oligopoly Challenges in Air Transport:  The European airline market Under the Open Skies was historically dominated by policy : national flag carriers like British Airways, Air France, Slot allocation reforms and Lufthansa, which created These policies allowed Low landing fees high barriers for new entrants. Ryanair to grow into one of Tax incentives the largest low-cost carriers in Europe, drastically increasing competition, lowering airfares, and providing more options for travelers. Relevance to Morocco: Opening key routes to low- cost carriers like Ryanair or EasyJet. Creating tax incentives for airlines serving new or underserved routes. NEOair Problem of the solution (Behavioral Perspective): Consumer Inertia: Consumers may continue choosing Royal Air Maroc despite high prices due to habit, brand loyalty, or perceived lack of alternatives. Perception of Low-Cost Carriers: Consumers might perceive low-cost carriers as offering lower quality or less reliable service. Solution of the problem of the solution (Behavioral Perspective): Nudging Consumers Towards Designing Choice Architecture at Competitors Airports 1. Use social proof (e.g., testimonials, 1. Improve the visibility of low-cost reviews) to show positive carriers in booking platforms and experiences with competitors. physical spaces at airports. 2. Use behavioral marketing to 2. Simplify the booking process for emphasize value propositions like competitors by reducing friction "Save more to travel more." (e.g., easier payment methods, better online user experience). What Are Stackelberg Games? Stackelberg games describe strategic interactions where one actor (the leader) makes a decision first, and other actors (the followers) respond by optimizing their own strategies based on the leader's action. This model applies to competitive markets where firms or individuals anticipate and adapt to others' moves (e.g., pricing). Our Case Study: Ride-Hailing Services The competition between platforms like Uber, InDrive, and traditional taxis illustrates Stackelberg dynamics in Morocco. Leader: Uber sets pricing, service models, and technological standards. Followers: Taxis and other ride-hailing platforms adapt in response, often struggling to compete due to unequal regulatory environments or technological disparities. Pareto Efficiency Pareto efficiency occurs when no individual can be made better off without making someone else worse off. The current market might not be Pareto efficient due to factors such as: The overregulation of taxis The lack of protections for regular drivers The unequal access to technological advancements Behavioral Science: What Influences Passenger Decision-Making? Cognitive Biases: Passenger decisions are influenced by a mix Availability Bias: The abundance of private cars of utility-maximizing behaviors and (like Uber) in urban areas creates a perception of cognitive biases: higher reliability. Utility Maximization: Champion Bias: Reputation of the brand (Uber vs. taxi) outweighs service quality. Lower cost and faster service often drive choices. Experience Bias: Decisions are shaped by past Norms: Reputation, trust, and perceived experiences with similar transport. fairness of service providers. Loss Aversion: If Uber is cheaper than taxis, passengers avoid taxis to prevent perceived loss. Blame Avoidance: Choosing Uber to avoid criticism for delays caused by waiting for a taxi. Identifying Market Issues The ride-hailing market faces significant challenges: - Safety Concerns: Reports of unsafe Uber rides and lack of driver protections. - Decline in Taxi Usage: Traditional taxis struggle to compete, leading to decreased revenue and job losses in the local economy. - Driver Vulnerability: InDrive and Uber drivers lack protections like health insurance and legal safeguards in case of accidents. - Unemployment: Both Uber and taxi drivers may struggle to sustain their livelihoods due to market saturation. - Technological Disparities: Ride-hailing apps offer convenience (GPS, shared locations, driver ratings), while taxis lack similar technological support. Proposed Public Policy To address market inefficiencies, promote fairness, and reduce cognitive biases of consumers: We propose the following solution... Unified Ride-Hailing Platform Launch an app integrating both taxis and ride-hailing services. Ensure equal representation for all drivers. Mandate health insurance and accident coverage for all drivers, regardless of platform. Subsidize app development for taxi companies to level the playing field, with simplified licensing and fee structures, to establish technological equity 3 possible issues that these solutions could face - Integration Issues for Traditional Taxis: adapting to new technologies with updated regulations - Resistance from dominant ride-hailing platforms: algorithms adjust fares in real time based on supply and demand, making it hard to determine if practices are predatory or market-driven. - Unintended Behavioral Consequences: cognitive biases may still lead consumers to prefer familiar platforms (e.g., Indrive) over taxis, even when pricing and regulations are equalized. Breaking it down: Behavioral science-based solutions to each of these issues  Integration issues for traditional taxis Behavioral Solution: Reward Systems for Driver Engagement Design training programs for taxi drivers with interactive elements (e.g., earning badges or rewards for completing training or adopting new skills). Use behavioral prompts such as highlighting success stories or celebrating early adopters publicly.  Resistance from Dominant Ride-Hailing Platforms Behavioral Solution: Social Norming Use surveys or campaigns to publish statistics like:​ Use social norm campaigns to show that “80% of consumers prefer most people agree with and support fair competition. policies that make taxis and ride- hailing services equally This creates pressure on companies to accessible and safe.” align with public expectations, so they are seen as ethical and community- focused.  Unintended Behavioral Consequences Behavioral Solution: Counteracting Biases Through Defaults Use default settings in the unified app to automatically show taxis as the first option in specific scenarios, such as short distances or non-peak hours. Introduce driver and service quality ratings for taxis directly within the app to counteract biases like the champion bias.