7.11.16

TWEAKING THE SELF-SELECTION CONSTRAINTS.

In the course of a meditation on the Viewliner dining cars, Travel and Trains's Jim Loomis diverts into the arcana of pricing to encourage self-selection.
Amtrak marketing people may indeed have been right—at least in one context—to take the diner off of the Silver Star and having passengers pay for their food in the cafĂ© car on that train.

I was toying with the idea of taking the train from Washington to Jacksonville following NARP’s April meeting and compared fares for the Meteor and the Silver Star on the day I would be traveling. If I chose the Meteor, a dinner and a breakfast would be included in my fare . . . but the cost differential was $156.

That was a moment-of-truth for me, at least as far as this specific issue is concerned. I would be in a Viewliner sleeping car on either train. And so it all boiled down to this: Was I willing to pay $156 in additional fare for one dinner and one breakfast in an Amtrak dining car?

I thoroughly enjoy the dining car experience and I look forward to every meal when I’m traveling on one of Amtrak’s long-distance trains. So much so that, yes, I would be willing to pay more for that experience. But $156 more? I’m afraid not.

It’s a unique situation with the Silver Service, of course, because there are two overnight trains running on almost the same route. But give the marketing guys their due: the no-diner option does seem to be working.
To succeed, a second-degree price discrimination must make the bundle of service offered attractive to the segment of the market the management intends to serve, and unattractive to other segments.  (Here's a long-winded elaboration.) With two bundles, it's relatively simple: price the more attractive bundle high enough that some consumers will forgo it, and make the less attractive bundle sufficiently unattractive that other consumers will pay the higher price to use the more attractive bundle.  That's a problem older than railroading: stagecoach passengers paid more to ride inside than outside, and the way the early passenger railroads extracted premium fares was to offer seating in gondola cars at a low price and seating in enclosed cars with windows at a higher price.  The people making do on /6d a day would not pay the high fare, and the carriage trade (see where that term came from, kiddies) would not ride outdoors simply because all the seats got to the station at the same time.   That's how incentive compatibility works.  It may be the famous Walter Bagehot himself reflecting on the pricing and the quality of service, and the necessity of an Act of Parliament stipulating conditions of carriage in Third Class.  (Jules Dupuit also got in on the action, are there any historians of economic thought lurking?)

But tweaking the bundles and the fares is complicated: so much in the UK that eventually Second Class disappeared, and Third became Standard.

But Amtrak now run sleeping cars and Business Class on the tri-weekly Cardinal, a reversion to the old forms?  Larger airplanes may have a Deluxe section, a Business section, and a Steerage section.    One of the British train operating companies proposed to offer three classes of service, and look at this bit of angry consumer advocacy.
If we have first class for the better off in society, anything below that should surely be second class, reserved for society’s riff-raff, unless there’s no room for first class passengers. Theoretically, this could cause a problem because if second class passengers had to move, where would they go? To my mind, it’s simple: re-introduce third class travel.

This might actually encourage more ordinary working class people to use trains. The new coaches could be “low cost”. No need to bother with seats, or even a roof. There must be hundreds of old coal trucks which are no longer in use. Why don’t First give them a quick power wash and attach them to the back of their geriatric fleet of HSTs?

Each time I travel by train, after taking out the necessary overdraft, I am reminded of the class divide that still exists. Not long ago, I travelled on the London to Paddington line and had to stand for much of the way. This was not exactly what I had hoped for given the amount of money I was handing over to First’s gleeful shareholders, but needs must. Having squeezed my way from one end of the train to the other, I found two first class coaches, populated between them by around six people. The number soon became around five people as the guard made his ticket check and found someone who had tired of standing all the way and rested his weary body on one of the many empty seats. The guard was not amused, first demanding that the man move immediately and then threatening to throw him off the train and even be arrested.
Amidst the griping, there's one missed opportunity ... the guard (conductor) didn't use the occasion of the empty space in First to sell upgrades.  Pullman conductors and porters made an art of that, keeping track of who was off where, who was going to the dining car, and could get upwards of forty people into a 28 seat parlor car, with The Pullman Company pleased with the revenue, and the satisfied passengers bestowing generous tips on the railroad men.

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