Knowledge of demand is crucial information for all manner of transportation decisions, by individual firms, market analysts, or government agencies. Fortunately, empirical estimation procedures and computer software continue to improve, being both more sophisticated and user-friendly. This is important because accurate information is one of the preconditions for effective decision-making. One of the lessons from examining a great many demand studies is recognition that the value of elasticities in practice varies more widely than many people would expect. This is for two reasons. One is that results are sensitive to the specification and estimation procedures used to estimate demand. That is, it is important to have accurate data and use properly specified models. The second reason for the observed wide variation in demand-elasticity estimates is that this reflects the wide variation in degrees of competition in actual markets. People traditionally believed that the demand for most transport is relatively inelastic, because transport costs relative to value is generally fairly low. In reality, competition between modes, routes, or firms gives rise to a wide range of price elasticities, often much more elastic than conventional wisdom would suggest. The demand elasticity becomes even larger as we take into account the long-run effects of a change. This suggests that there is no shortcut to obtaining reliable demand-elasticity estimates for a specific transport market without a detailed study of that market.
Abstract