Pricing Train Fares

Last week Alex commented about the high price of train fares for on the Northeast Corridor, compared to other Amtrak routes, even when accounting for distance. It’s often difficult to understand why things cost what they do, but I think it’s particularly difficult when it comes to train fares.

(from SP8254 - Catching Up on Flickr)

At the end of the day, the price of most goods and services in a market boils down to supply and demand. Even though the Northeast Corridor has a lot more service than other Amtrak routes, so long as the demand for that service outstrips the supply, fares will be higher. The fact that more service exists is one of the drivers of demand, as it makes the service significantly more useful to more people.

But there’s more. Unlike airlines or nonstop bus companies, trains don’t make “nonstop” runs between two markets. There are almost always stops in between, which creates an opportunity cost that must be accounted for.

Consider a hypothetical train traveling from DC to New York. It has 100 seats, and when it leaves DC, every seat has a passenger in it. Half of the passengers are going to New York, 30 are going to Philadelphia, and 20 are getting off in Baltimore. Of course, the people traveling to Baltimore expect to pay less than the people traveling to New York, because the distance they’re covering is a lot shorter. But every person traveling from DC to Baltimore represents one person who can’t travel from DC to New York.

Of course, this is a very simple example. In reality, there will be people who get on and off at different points along the line, and there are a lot more stops between DC and New York than the ones I mentioned. If Amtrak were truly seeking to maximize its revenue, it would price fares such that supply and demand were in check for every city-pair. This might mean that short trips would cost more than longer trips, or that there are quotas so that only a certain number of fares could be purchased between a given city pair – but doing that raises equity questions. Why should someone traveling a longer distance get to pay less? Why wouldn’t people just buy the least expensive ticket and get off the train early?

I can’t say with absolute certainty that this is the exact driver of train fares, and if anyone knows with more certainty, I’m very curious to know.