Revenue maximization

This approach requires pricing services flexibly in order to recognize marginal affordability, and hiking fares at times of supply constraint such as during bad weather or heavy congestion. This practice is widespread in the informal sector, even where there are official fare ceilings, and it is highly resented by passengers who are excluded from travel by the fare level arising.

The approach may also be followed by a formal operator who has pricing freedom. In this case, fares are gradually increased to the level where there is significant demonstrated resistance and the decline in patronage starts to offset the yield from the fares increase.

Pursuit of revenue maximization is always going to act against the public interest. However the higher fares that would result may then attract new market entrants, and the operator could lose his pricing power as a consequence. This process may be encouraged by public authorities seeking to protect passengers’ interests without introducing formal fare controls.