Transport policy pricing

Institution of Mechanical Engineers, Road. Pricing Policy, Transport Policy Statement 09/01 (IMechE, London, 2009)... 

Policy instruments (see Table 19.5) to meet the various sustainability targets may be classified into infrastructure investment, traffic demand management (TDM), regulation, pricing and support research and development (R D) in new technologies. Each of these measures consists of several variants, which will, however, not be considered in detail in this volume. The following matrix undertakes an attempt to propose the appropriateness of the various classes of policy measures to meet specific subobjectives of a sustainable transport development. 

Cement is a product which is quite homogeneous throughout the world. The existence of different prices is mainly justified by the importance of transportation costs. Whereas a tonne of cement is sold around 80 when it leaves a plant in France, it costs 10 to transport it by road over 100 km. The cost is much lower by sea transporting cement from a harbour in eastern Asia to Marseille is the same as from Marseille to Lyon. Such a characteristic must be taken into account when assessing the impact of an asymmetric climate policy on the cement industry whereas coastal regions could be severely impacted, inland ones seem to be relatively protected. 

See Hepburn (2006) for a simple presentation and review of the prices vs. quantities literature with an application to policy questions in health, transport, defence and the environment. 

The overall objective of the TAFV model is to assess the competitive market outcome over time, with and without possible new policy initiatives. Rather than taking fuel and vehicle prices and penetration rates as an input, they are determined from market conditions. Operationally, this is equivalent to maximizing consumer and producer surplus, or well-being, from transportation services provided by light duty vehicles, essentially... 

Our results lead us to several observations. First, in a market economy where vehicle manufacturers, fuel suppliers, and consumers all make independent decisions, the efficacy of government policies to reduce the dependence of the U.S. transportation sector on petroleum is highly dependent on the world price of petroleum. Second, the penetration of alternative fuels and AFVs depends on the fuel retail infrastructure, the ability of AFVs to achieve scale economies, and other transitional barriers. Third, governmental policies, if sufficiently large, can effectively reduce these barriers and can allow alternative fuels to compete in the marketplace with gasoline. However, given the current and expected low price of petroleum in the world today, doing so would be costly. 

The firm must also decide on whether it will charge customers for the transportation costs incurred when shipping the products to them. Customers located at different distances from the manufacturer will pay a different total price if they are charged for the transportation costs. Yet if the seller quotes a uniform price that includes the transportation costs regardless of distance from the manufacturer, some buyers may receive the products at a total price that is less than the costs incurred to the manufacturer while other customers wiU pay a price that exceeds the total costs incurred by the manufacturer. Such differences in prices to similar types of customers may lead to some concerns about the legality of the pricing policy. 

Perhaps the most difficult aspect of the pricing decision is to develop the procedures and policies for administering prices. Up to this point, the issue has been on the setting of base or list prices. However, the fist price is rarely the actual price paid by the buyer. The decisions to discount from list price for volume purchases or early payment, to extend credit, or to charge for transportation effectively change the price actually paid. In this section, we consider the problems of administering prices. 

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