In the United States, private ownership of transportation companies is encourage
ID: 420906 • Letter: I
Question
- In the United States, private ownership of transportation companies is encouraged. What is the rationale for private ownership in the U.S. as opposed to other industrialized nations?
- You have read about the many regulations relating to transportation safety and security. What are the advantages and disadvantages of increasing these regulations? Include perspectives of transportation providers and transportation users in your discussion.
- What is the relationship between value-of-service pricing and cost-of-service pricing?
- Discuss how pricing strategies could differ in competitive markets, oligopolistic markets, and monopolistic markets.
- In the United States, private ownership of transportation companies is encouraged. What is the rationale for private ownership in the U.S. as opposed to other industrialized nations?
- You have read about the many regulations relating to transportation safety and security. What are the advantages and disadvantages of increasing these regulations? Include perspectives of transportation providers and transportation users in your discussion.
- What is the relationship between value-of-service pricing and cost-of-service pricing?
- Discuss how pricing strategies could differ in competitive markets, oligopolistic markets, and monopolistic markets.
Explanation / Answer
1. The rationale to foster private ownership of transportation industry, where market forces cannot. The availability of oligopoly will be created in the case of private ownership and so the service will be more optimized with the private ownership. The rationale for public promotion of transportation is to encourage beneficial impacts on the industry that meet future transportation needs of the U.S.
2. The advantage of increasing regulations to transportation safety and security is greater protection for travelers and the general public. Without government regulation, there is always a fear of transportation providers sacrificing safety matters for profitability and viability. Increasing regulation ensure that transportation providers do not defer required vehicles and operating safety requirements in lieu of competition. Transportation safety and security regulation pertaining to the handling of hazardous materials is a must since it poses the greatest threat to the public safety. The regulation governs loading and unloading practices, packaging, routing, commodity identification and documentation must be adhered to when responding to an emergency. The disadvantage of transportation and security regulation can be seen in the air travel industry. Since 911, passengers are screened for illegal items before boarding the plane and size restriction are enforced on personal items in carry-on luggage. This is a disadvantage to the customer and to security. Passengers are delayed and increase cost for airlines.
3. Value-of-service pricing is sometimes defined as charging what the traffic will bear. It can mean that prices are set so that on each unit the maximum revenue is obtained regardless of the particular costs involved. The second meaning is that no service should be charged a price that it will not bear when, at a lower price, the service should be purchased. The lower price will always cover the marginal cost incurred by the company in providing its service.
Cost-of-service pricing has to alternative concepts: basing prices on marginal cost or basing prices on average cost. The company either makes a homogenous price or they base it only on the average cost. The major relationship between to two is they play hand in hand and it gives the industry more choices.
4. A market structure attempts to explain pricing behavior in terms of the number of competitors, the degree of product differentiation, barriers to entry, etc. In a perfectly competitive market, there are many sellers with the same product/service. No one influences the price and there is an unrestricted entry into the market. Therefore, producers can sell at one market price. In an oligopolistic market, there are very few large sellers with substitutable products. Therefore, they mutually decide the price which is followed by all the companies existing in the market so that they may take the same advantage as of Monopoly. At the end, there is only one player accessible to that market, therefore he keeps the price as per his wish. That is why it has been seen that in the monopolistic market, the price of the product is usually high.
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