ng Strategy of Indian RailwayPGPM 2014 – 16 Secton C Group 9 Adig 14P125 Dikshant 14P138 Nikhil14P152 Sakshi14P162 Sanchit14P164 Vikramaditya14P178 1 About IR Economics of IR Monopoly of IR Price Discrimination ◦ ◦ ◦ ◦ ◦ ◦ Peak Load Pricing & Off – Peak Pricing First Degree Price Discrimination Second Degree Price Discrimination Third Degree Price Discrimination Inter – Temporal Price Discrimination Dynamic Pricing Overview 2 Indian Railways is a state owned enterprise, which is owned and operated by GOI through the Ministry of Railways. It is world’s fourth largest rail network comprising of 115,000 km of track over a route of 65,436 km and 7,172 stations. First introduced to India in 1853 from Bombay to Thane. Indian Railways 3 Size of the industry Total contribution to the economy/sales Employment Opportunities Economics of Indian Railways 4 . The railways have over the years increased the freight revenue by increasing its axle loading.000 coach vehicles and 222.Indian Railways operates 7. 140. 5 .566 locomotives.485 crores over the last year. improving customer and adopting an Size of services the Industry innovative pricing strategy. The IR registered a 15% growth in gross revenue to Rs.147 freight wagons. 50. It contributes to the development of India’s industrial and economic landscape for over 160 years & accounts for around 1% to the GDP. Total contribution to Economy 6 .65 mn tonnes daily) under a single management. It is second largest in terms of the freight it carries (2.IR is the fourth largest rail network in the world. Indian Railways – A monopoly 7 . Capital Intensive Venture Economies of Scale Government Rules and Regulations Sources of Monopoly Power & its effects on Pricing Strategy 8 . 9 . Price discrimination exists when the sales of the identical goods or services are transacted at different prices from the same provider. Indian railway enjoys some part of the consumer surplus by employing the different methods of price discrimination. 10 . 11 . sex. and achieves this based on various factors like age. It has monopoly and hence is able to dictate the pricing terms and conditions in spite of being regulated by GOI. The product and services of IR are not resalable and hence restricts its discount customers to become resellers and benefit from arbitrage.Following are the few factors that enable Indian railways to engage in price discrimination: It employs market segmentation. job type etc. Peak Load Pricing 12 .It is a form of price technique that is applied to public goods and is a particular case of Lindahl equilibrium. Different prices are charged for the same facility which is used by the consumers. Indian Railways uses the practice of charging higher prices during peak periods when there are capacity constraints cause marginal costs to be high. This is called Peak Load Pricing. 13 . Indian Railways employs this type of discrimination by differential discounts in peak and off-peak seasons. Peak Load Pricing 14 . IR launched ‘Empty Flow Direction Freight Discount Scheme’. This was to ensure better utilization of empty wagons in the return direction. Railways introduced a freight discount of 30% during lean season and 20% during peak season on incremental loading in the empty flow direction. This is to ensure that If trainload traffic is offered in covered wagons for both up and down directions. There also exists an alternative to a peak load pricing strategy is an off-peak pricing strategy whereby discounts are offered to the standard commuter fare for travel outside of designated peak periods. then.IR also launched ‘Two Leg Freight Discount Scheme’. a discount of 20% in lean season and 15% in peak season would be given for traffic in both directions. Peak Load Pricing 15 . Also known as Perfect Price Discrimination The firm should be aware of every consumer’s willingness to pay and restrict resale of the product Price variations will be based on ◦ Customer Willingness to pay ◦ Ability to pay for the goods and services First Degree Price Discrimination 16 . First Degree Price Discrimination 17 . Indian Railways does not engage this but plans to do so in future by having online auction of freight capacity.Firms will charge every consumer a different price Complete transfer of Consumer Surplus to Producer Profits increase and economic efficiency is improved (Removal of DWL) Presently. Price A varies according to quantity sold monopolist sets the block prices Prices are highest quantity bought for first block of Prices are reduced for each successive quantity consumed by the same customer Second Degree Price Discrimination 18 . less will be the price per km Second Degree Price Discrimination 19 .83 Delhi Bangalore to 4600 1282 3. Rajdhani’s Price Distance Price per IAC (Rs) (km) km Bangalore to 6690 2365 2.58 From the above example it is very clear that the Nagpur more you consume.Heavily employed by Indian Railways Indian railways charge for every kilometer which is reduced as one travels longer. Second Degree Price Discrimination 20 .IR provides special passes called ‘IndRail’ for foreign tourists and NRIs. indianrail.in Third Degree Price Discrimination 21 . 2690 Rajdhani 3710 6675 4300. 2760 * All discount codes applicable for 1ST AC from Bangalore to Delhi obtained from http://www.Variation in price based on location of purchase and customer segment Segmentation based on age ◦ Child (5 – 12 yrs) – 50% discount ◦ Citizens (12 – 60 yrs) – At purchase price ◦ Senior Citizens (60 yrs for Male & 58 yrs for Female) Males – 40% discount (Code – SRCTZN) Females – 50% discount (Code – SRCTNW) Train Child ( 5 – 12 yrs) Citizen (12 – 60 yrs) Senior Citizen (M.gov. F) Sampark Kranti 2690 5240 3200. 3710 Karnataka Express 2760 5380 3285. ) YTH2SR Unemployed youth for interview 100% (2nd class) 50% (SL) * All discount codes applicable obtained from http://www.) KIDNEU Kidney Patient 50% (1AC & 2AC) 75% (3AC.indianrail. AC Chair etc.gov.in Third Degree Price Discrimination 22 .Segmentation Discount Code Passengers based on type of Description Discount % SPORTN Sports National Level 50% (1st Class) 75% (2nd and SL) STDNT Student Concession (General) 50% TEACHR Teacher 25% TLSMIU Thalassemia Patient plus one escort 50% (1AC & 2AC) 75% (3AC. AC Chair etc. indianrail.in/circular_Journey_Fares.Segmentation based on travel purpose: ◦ Target customers intent for sightseeing or pilgrimage tour ◦ Provide incentives for Round Trips ◦ Issued on all journeys and all classes – starting Fare (2nd Route and ending on same train AC) New Delhi – Kanpur Central – Gaya – Howrah – Patna – Allahabad – Kanpur Central – New Delhi (3112 km) 3214 Source: http://www.html Third Degree Price Discrimination 23 .gov. in Total Fare 5200 Third Degree Price Discrimination 24 .co.Individual Leg Fare Train Fare (3rd AC) New Delhi – Kanpur Central Sampark Kranti 735 Kanpur Central – Gaya Purushottam Express 900 Gaya – Howrah Kolkata Mail 760 Howrah – Patna Akal Takht Express 880 Patna – Allahabad North East Express 655 Allahabad – Kanpur Central Magadh Express 535 Kanpur Central – New Delhi Prayag Raj Express 735 Source: https://www.irctc. Railways used segmentation based on location by charging convenience charge ranging between INR 10 – 20 for those who books the ticket online This charge commands premium from customers who are willing to pay extra to avoid queues Railways also does segmentation based on destination: ◦ 6% freight Concession for traffic booked from other states for stations in North East Third Degree Price Discrimination 25 . This is the practice of separating consumers with different demand functions into different groups by charging different prices at different points in time Indian railway employs this type of discrimination through their Tatkal Seva In Tatkal they charge higher prices as ticket is booked one day before the date of journey Inter Temporal Price Discrimination 26 . 00 AC 3 Tier 250. Tatkal Max.00 350.00 400.00 AC 2 Tier 300.00 Executive 300.gov.00 200.00 AC Chair Car 100.00 Source: http://www.00 Sleeper 90.00 175.in/tatkal_Scheme.html Inter Temporal Price Discrimination 27 .00 400.00 15. Tatkal the table Travel Charges (in INR) Charges (in INR) Second (Sitting) 10.• Tatkal Charges have been fixed as a percentage of fare at the rate of 10% of basic fare for second class and 30% of basic fare for all other classes subject to minimum and maximum as given in Class of below.indianrail. Min. • Additional Tatkal charges are levied passengers for booking one day before. • Let us take an example: Rajdhani’s III Normal Price AC Fare Mumbai to Delhi 2030 on Tatkal Price 2390 Inter Temporal Price Discrimination 28 . all the unsold seats lose their value which can never be recovered At present Indian railways mostly employs fixed prices for seats based on various degrees of price discrimination. Dynamic Pricing 29 .Consider The the railway reservation system train seats are a very perishable commodity After the train moves on from a particular station. • But in past they have tried dynamic pricing on premium trains only having AC-II and AC-III coaches The dynamic fare pattern used by railways is similar to the one used by airlines with it going up with rising demand Encouraged by the overwhelming response to the experiment of running premium trains on dynamic fare pricing. railways has decided to run such trains on 36 new routes in a bid to cater to the rush during summers and also to generate extra revenue Dynamic Pricing 30 . Dynamic Pricing 31 . But a higher limit is fixed. By dynamic pricing Indian railways charging more to the customer who are willing to pay extra for urgent travel Because of this producer is able to acquire consumer surplus as well. Dynamic Pricing 32 . As the journey date comes closer and seats get filled the price increases Base price of the fares is increased and is at par with that of the Rajdhani tatkal tickets. In this Advance Reservation Period (ARP) of these trains will be a maximum of 15 days. Pricing under railways without dynamic pricing Dynamic Pricing 33 . Pricing under railways with dynamic pricing strategy Dynamic Pricing 34 . Thank You Have a Safe Journey 35 .