18: The Economic Theory of Transport Pricing

This chapter gives an overview of the economics of transport pricing and provides some basic understanding of key issues important for prices in transport markets. The pricing policy adopted depends upon objectives. The objective of economic efficiency may be most important to society; prices must then be equal to marginal social costs. In most cases, however, actual transport prices deviate from marginal costs due to specific transport market conditions (e.g. externalities) and the presence of constraints (e.g. practical and legal). The regulator has then obviously to resort to ‘second-best' pricing: setting prices that are available optimally under the constraints applying.