Heterogeneity in demand and optimal price conditioning for local rail transport

05/30/2019

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by   Evgeniy M. Ozhegov, et al.

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This paper describes the results of research project on optimal pricing for LLC "Perm Local Rail Company". In this study we propose a regression tree based approach for estimation of demand function for local rail tickets considering high degree of demand heterogeneity by various trip directions and the goals of travel. Employing detailed data on ticket sales for 5 years we estimate the parameters of demand function and reveal the significant variation in price elasticity of demand. While in average the demand is elastic by price, near a quarter of trips is characterized by weakly elastic demand. Lower elasticity of demand is correlated with lower degree of competition with other transport and inflexible frequency of travel.