The author deduces an optimal policy for regulating a transport company in a case where the public authorities have uncertain information about the actual demand. The optimal policy embodies a trade-off between securing external efficiency in the transport market and controlling the operator’s profit.
This paper studies pricing and capacity decisions in markets for phone-ordered taxicabs. Firms first choose capacities and then compete in prices. As firm demand increases, so does waiting time. This dampens competition and makes prices too high from the social point of view. Efficiency improves if firms choose large capacities. In a two-firm setting, equilibrium capacities are shown to be larger if both firms maximise total profits than if they maximise profits per cab.
Forcing a carrier to price a captive shipper at marginal cost will not enhance efficiency.
