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A Product Differentiation Model of Bus Deregulation

A Product Differentiation Model of Bus Deregulation

Consumers, influenced by their incomes, are assumed to opt for private or public transport as a long-term decision. Those who have opted for public transport then choose particular services which are least costly in terms of both price and convenience. This two-stage framework involves both vertical and horizontal product differentiation, and yields a new perspective on bus deregulation. Allocative inefficiency from deregulation can be substantial, and can amount to a third of the costs of operating the bus system.

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