An analysis on the effect of peak load pricing on the MRT3
Date
2016-06
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
The Metro Rail Transit Line 3 or the MRT3 is the most utilized train system in the Philippines. It has 13 station along Epifanio Delos Santos Avenue (EDSA), which is the main thoroughfare of Metro Manila. The MRT3 was created via the Build, Lease and Transfer (BLT) Agreement between the Metro Rail Transit Corporation (MRTC) and the Philippine government. Because of this, billions are spent each year just to subsidize the costs of maintaining the low prices of the
MRT and the repayment of the BLT agreement. The MRT3 provides a fast and cheap alternative for commuters around the metro and thus provides a positive externality for the people and ultimately leads to a positive economic benefit. However, its demand has become too high and the trains are now exceeding their capacity during peak hours. There might be a way to efficiently ease the demand of the trains while simultaneously helping to reduce the burden of
the government in subsidizing the MRT’s operations. Peak Load Pricing, a pricing strategy that sets different prices based on the demand of a good at a given time, could potentially be the key to solving both of these problems, since it will help ease the demand for the MRT and it will also provide a positive social benefit for all the stakeholders involved. Using the MRT Operations Data from 1999-2015, we did a regression model showing that the MRT will be better off with the implementation of the peak load pricing strategy. Through this model, peak load pricing does ease the demand of the MRT and it will have positive policy implications since the subsidy of the government will be lessened and may now
be put into good use.