Differential Pricing Strategies of High Speed Railway Based on Prospect Theory: An Empirical Study from China

Jin Qin, Wenxuan Qu, Xuanke Wu and Yijia Zeng
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Jin Qin: School of Traffic and Transportation Engineering, Central South University, Changsha 410075, China
Wenxuan Qu: School of Traffic and Transportation Engineering, Central South University, Changsha 410075, China
Xuanke Wu: School of Traffic and Transportation Engineering, Central South University, Changsha 410075, China
Yijia Zeng: School of Traffic and Transportation Engineering, Central South University, Changsha 410075, China

Sustainability, 2019, vol. 11, issue 14, 1-17

Abstract: Based on the single pricing method of the high-speed railway (HSR) in China, a pricing strategy without flexibility leads to the problem of extreme fluctuations in passenger flow and difficulty in increasing revenue. In order to achieve sustainable development of the HSR from the perspective of pricing, in this study, we divided the passenger market according to the different factors affecting passengers’ choice behavior, maximized ticket sales revenue with expected travel cost as the reference point, and used prospect theory to construct a differentiated pricing model under elastic demand. A simulated annealing algorithm was used to solve this model under two passenger flow intensities. Taking the Beijing–Shanghai corridor as an example for analysis, the results show that differential pricing can be implemented on the basis of passenger decision-making, and price reductions at off-peak periods will attract passenger flow which will increase ticket sales revenue by 10.41%. During the peak period, prices can be increased to maintain passenger flow, and ticket sales revenue will increase by 7.98%. We also found that increasing passenger expectations have a greater impact on ticket sales. This study provides theoretical and methodological support for the sustainable development of the HSR.

Keywords: differential pricing; price discrimination; passenger expectation; prospect theory; simulated annealing (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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