Discrimination at the Ports

Abstract

In transport, the problem of demand exceeding capacity often occurs with congestion as a result. The resulting delays impose substantial efficiency loss. Price discrimination by peak load pricing is a well-recognized way of handling the problem. Such schemes are, however, often politically controversial because they might disadvantage vulnerable groups of passengers. An alternative is the use of a priority scheme. In this paper, a framework positioned within the traditions of cost–benefit analysis is established to examine the welfare effects of granting one group of passengers priority on transport modes characterized by limited capacity and low frequency. The case is a trial arrangement initiated at a rural car ferry crossing in Northern Norway intended to ensure that local commuters (traveling to and from work) can board for the desired departure. With respect to pricing, road authorities have a stated objective that fares and discounts at ferries be equal throughout the nation. Hence, for local political authorities to ensure local commuters a predictable transport alternative by price discrimination is neither desirable nor legal. The empirical evidence demonstrates that loss of social welfare caused by congestion problems at a port can be potentially reduced by introducing such a priority scheme. Recommendations are provided in relation to the number of users required for the priority arrangement to render a positive net benefit for society. This ex ante information is useful for policy makers when they are evaluating whether to initiate such priority schemes to reduce efficiency loss in passenger transport markets.