Its taken me almost ten days of travel on the Washington metro to realize that it is a public transportation system that actually uses peak-load pricing rather effectively. Traveling from Crystal City to Dupont Circle everyday at office hours (between 8 a.m. and 10 a.m.) in the morning, for example, costs $2.16. Coming back the same way not at office hours (sometime in the afternoon) costs $1.60.
The difference between prices seemed curious at first and I was baffled how someone would potentially calculate and plan their expenditure for the week on transportation if the prices changed so arbitrarily. For a while I even thought it was gas prices causing the price to go up till I discovered the lower price on a fine Thursday afternoon, only to feel stupid when I realized that these metro trains run on electricity not gas. That would be all too unreliable in India where electricity outages are an everyday phenomenon, not true here though.
Prices change depending on the time of the day you travel. Rush hour tickets are more expensive than taking an empty yellow line to Georgetown in the afternoon. Peak-load pricing is a great example of how economics uses incentives to better everyday existence. At office hours in the morning, a train on the metro line is a scarce commodity with a lot of people competing for space on it. Those who ‘really’ need to get to work on time pay the premium and access the metro, those who can wait- do, and get the benefit of lower price when the commodity is not so scarce and therefore not so fiercely competed for.
In some sense this is the market allocating a scarce resource efficiently through prices as the signaling system. Its also a great de-congestion method, providing a disincentive to travel on the metro on peak times- the higher costs mean that at least some people will look for alternate ways to travel- by road, bus or walk. I sometimes wonder why heavily congested roads in India aren’t just converted to toll roads with peak-load pricing. Electricity too is a commodity that responds well to the idea of peak-load pricing and actually encourages the conservation of electricity well.
In India peak-load pricing works beautifully for the Internet and Telecommunication- most Indians’ are familiar with free calls from 9 p.m. to 6 a.m. schemes on cellular services and free night-time surfing from Internet Service Providers. Watching peak-load pricing work in a public transportation system that I use everyday is fascinating and makes me wonder why this powerful tool isn’t used more often in Indian infrastructure and public utility provision.