Optimal Discount Policies for Transit Agencies: The Case of Pass-Programs and Loyalty-Programs

Miss the seminar? Medhi Nourinejad shared his presentation file with UTTRI. Access the PDF file here.

Abstract

The proliferation of smart cards in public transportation has paved the way for successful implementation of two prominent discount policies: pass programs and loyalty programs. While pass programs have been around as early as the 1970s, loyalty programs are only now gaining unprecedented popularity in public transportation. In a loyalty program, riders get a discount on their fare if they complete a given number of trips within a time period (e.g. a month). Our review of several mass transit agencies in Canadian cities shows that transit agencies are not unanimous in their choice of discount policy. While some offer only the pass program, others offer the loyalty program, and a few offer both. In this study, we derive the optimal pass and loyalty program, and we investigate if one is superior to the other in terms of social welfare and profit. We find that each program has a unique impact on the transit agency. The pass program is superior to the loyalty program for public transit agencies because (i) it offers a higher social welfare, and (ii) social welfare and profit are maximized at the same pass price, thus indicating that agencies do not sacrifice profit for social welfare. The loyalty program, on the other hand, is beneficial for private agencies such as Uber and Lyft because it generates a higher profit than the pass program when riders have more non-mandatory than mandatory trips. We develop a simulation model to account for several sources of uncertainty including user heterogeneity. The simulation model validates our earlier findings from the analytical expressions and provides several insights as well. In particular, we show that it is not ideal to provide the two discount programs simultaneously.

Mehdi Nourinejad is a PhD Candidate, Infrastructure and Transportation Engineering, Department of Civil Engineering at University of Toronto.


The Winter Term 2017 Seminar Series is presented by the University of Toronto Institute of Transportation Engineers (ITE) Student Chapter.