Control of tariffs

It is routine for some form of public control to be exercised over passenger transport fares in order to protect the interests of passengers. Where fares have been truly deregulated, it tends to take some time for market forces to bring these under control through the attraction of new market entrants seeking to avail of the opportunities created. This process may also overshoot, and the resultant excess of supply then demands increased tariffs in order to cover for the lack of profitability. As a result, informal pressures may be applied to operator associations or unions even where there is no formal control mechanism.
Where services are contracted under a net-cost regime, tariffs may be set as part of the tender requirements (with the award then being made on the highest premium bid or lowest subsidy demanded) or can result from the tender process if no external support is available. The former requires some mechanism (and institution) for the redistribution of bid premiums to support any routes requiring subsidy, but has the strong advantage of making the need for that subsidy transparent. The latter can result in differing fares for similar services, causing uncertainty for passengers and a degree of social inequity.
With a gross-cost regime, tariffs are not directly linked to the costs of service provision and the payments to operators reflect the supply of contracted passenger-place kilometers. However a concept has emerged whereby a technical fare can be calculated to cover all relevant operating costs, and the authorized fare is based on this but then rounded to accessible units of the local currency. This can result in both surpluses and deficits for the system authority from time to time (with these being expected to balance in the long run), and so requires the institutional capacity to absorb deficits when they are incurred.