BBC Panorama rail fare confusion - nil points for economics

Post by Dr. Adrian Wrigley

A couple of nights ago there was an entertaining show in the Panorama series titled "Train Fares: Taken for a Ride?". The synopsys reads as follows:

"Packed in like sardines, on trains that often arrive late... But it is the price of the tickets that really upsets lots of rail travellers, and fares have just gone up to record levels. So why are train fares so expensive? Panorama investigates the cost of riding on the railway."

As someone who has studied transport economics for many years, I had high hopes the subject matter of ticket prices would be examined. Unfortunately, my hopes were dashed when it became apparent that the show was primarily about an entirely different matter, investment costs.

Elementary economics class will explain that the amount people pay for a product or service (the "price") is determined by the amount people are able and willing to pay (the "demand"), and the quantity the supplier is able and willing to supply at any given price (the "supply"). Cost never controls the price in the market.

All the discussion about how much different station work costs, how much Network Rail spends and so on cannot have any bearing on price. Service and infrastructure costs will impact profitability and the political potential for subsidy. High costs on a proposed project attract "rent seeking" businessmen and politicians looking to share in a big pot of taxpayer funds.

The answer to the show's question "why are train fares so expensive?" I leave to another post here. The question of what to do about high rail fares and overcrowding is addressed in this article on HS2.