Unfair Fares?

Commuters in the Washington DC area have been closely following a recent proposal to increase Metro subway fares that has been debated throughout the city in the past few months. While the driving force behind the proposed fare increases is due to budgetary concerns, the pricing scheme that is being proposed clearly has its roots in price discrimination.

Metro has proposed an increase in fares during “high use hours” when many people are traveling. These blocks of hours are during commuting times when people are traveling to and from work. Metro is attempting to generate more revenue by targeting and charging higher fares to commuters who have a much greater willingness to pay for subway service during rush hours than a more casual subway rider that is not under pressure to get to work on time.

Metro is also proposing to generate more revenue by targeting subway riders based on their boarding-station. The proposed fare increases would require riders boarding from high-volume downtown stations to pay an additional surcharge. This would extract the consumer surplus of those that need to travel from the downtown stations.

Not only do these proposed fare schedule changes promise more revenue and a balanced budget for Metro, but they work to reduce problems in the subway system caused by high volume usage. By setting a price system such as the one proposed, Metro allows consumers to self-select into the different price groups based on riding time and station. Presumably, those riders that have the greatest willingness to pay for subway service in high volume situations will pay the higher fare. By distinguishing these consumer groups, Metro hopes to decrease subway usage in areas where volume is a problem.

While this pricing scheme is sound, the overwhelming majority of Metro riders would fall in the “high use” price block. So it’s not surprising that the proposed Metro fare increases were met with outrage from consumers. For now, the proposed fare increases were tabled, for the most part because of the heated consumer protests. Metro is currently looking at other ways to balance their budget. However, many officials believe that a fare increase is inevitable. At least they have a solid pricing scheme to implement when that time comes.


~Chuck Thomas, Brian Rock, Lian Ye, and Zoey Wang