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Setting up a price-cap for passenger coach service: an alternative model [Paper in Portuguese]

Author(s): Paulo Augusto P. Britto | Carlos Henrique Rocha

Journal: Journal of Transport Literature
ISSN 2238-1031

Volume: 7;
Issue: 3;
Start page: 177;
Date: 2013;
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Keywords: pricing of passenger transport by bus | reservation price | price-cap | x-factor | revenue for fixed assets

This article offers an alternative method model for pricing passengers coach service in regulated markets. The method implementation has low cost and is suitable to situations where the regulator has no historical economic and financial data to establish the tariffs based on the cost of service. Furthermore, it does not require complex calculations neither is based on unverifiable historical financial or market data. The model draws on the concepts of the model of price-cap regulation. A coefficient of type X-factor in price-cap is used to determine the productivity gains in order to induce future efficiency on the service provision. In this article, the model is applied to a hypothetical case of passenger transportation by bus and thus the X-factor is defined as an index of industrial activity of passenger coach services. The financial economic literature defines several levels of activity, one of them is the ratio between revenue and net fixed assets. Moreover, the proposed model is used to establish upper and lower limits for the tariff-bid, reducing possible opportunistic behavior at the auction.
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