Rational pricing strategies in the cross channel market

Stefan Szymanski

Transport Policy, 1995, vol. 2, issue 3, 169-177

Abstract: This paper develops a model of pricing in the cross channel market based on the assumption that competitors choose prices in order to maximise profits. It shows that on this basis the long-term pricing strategy of Eurotunnel will be very different from the announced prices for 1994. Optimal pricing for Eurotunnel in general involves setting prices which reflect the Tunnel's low operating costs. As well as presenting a formal model, the paper provides some revenue scenarios for differing degrees of consumer enthusiasm and price sensitivity. These show that in most cases failure to implement optimal prices significantly reduces revenue, and may even lead to bankruptcy.

Date: 1995
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