Rational economic decision – Peter Pan Bus or Megabus?

Rational economic decision – Peter Pan Bus or Megabus?

by Munazza, Maureen, and Yixue

As Thanksgiving break approached, students of Mount Holyoke began to excitedly make travel plans to go home or visit friends and relatives over the five-day break. Restrained by the tight budget of a typical college student, flying over short distances about the East Coast is not the ideal option, and hence students usually prefer to travel by road, and therefore generally look at two options while booking tickets: the Peter Pan Bus and the Megabus.

Even a year ago, Peter Pan was the only option available to the students of the Mount Holyoke and five college community for travelling from the Pioneer Valley to cities such as New York, Hartford and Washington DC. It could very well be said that the Peter Pan Bus Company had a monopoly in the transportation market for Mount Holyoke students. The high prices charged did not deter students from purchasing tickets, as it was the sole provider of transportation services, with no competing companies serving the area.

However, in 2010, a new company entered the market – Megabus Company, servicing from Amherst to Hartford and New York, where further connections to other destinations can be conveniently made from those locations. What’s more? Tickets usually cost less than $10, sometimes even as less as $1 if booked in advance! This is great news for students of Mount Holyoke, whose trips to home and weekend trips to Hartford or New York just got so much easier.

However, Megabus ticket prices to New York, which rise with respect to demand over a certain period of time, had gone up to $29 over Thanksgiving break, whereas Peter Pan remained at its standard $20 one-way. The transportation market is oligopolistic, with only a few firms operate in the market (in this case, a duopoly with only two companies – Peter Pan and Megabus). These two firms have dominant control over the market demand by Mount Holyoke students. In an oligopolistic market structure, the pricing strategy of firms is interdependent – that is, the decisions of one company influence the measures taken my other firms to maximize their own profit. Looking at the high price of Megabus tickets over Thanksgiving break, Peter Pan could choose to increase its ticket price since demand is relatively inelastic at that time. This would be an effective profit-maximization strategy for the company; however, it could decide to deliberately keep it lower than the Megabus rates to attract more customers.

For Mount Holyoke students, the question remains – Peter Pan or Megabus? Well, there are several economic and general factors to be considered before making the decision and booking the tickets. First of all, taking the Megabus means travelling all the way to Hampshire Mall, whereas the Peter Pan can be boarded right from our doorstep. Moreover, the Megabus offers services to only New York and Hartford, and separate connections to other destinations must be made there. Peter Pan, on the other hand, offers direct services, usually with a short transit in Springfield, Massachusetts. Brand loyalty plays an important part as well – students who have always travelled by Peter Pan before the entry of Megabus into the market would not readily want to switch over to a new company. Peter Pan has a stop conveniently located in South Hadley, right across the street from the main gate of Mount Holyoke, making it easy for students travelling home to hop on board without much hassle. Students would take all these factors into account before making a rational decisional about which service to choose. While some may prioritize cost and usually prefer Megabus as it is a cheaper option, others may stick to Peter Pan due to brand loyalty and convenience. However, over Thanksgiving break in particular, when prices of Peter Pan tickets to New York were lower than Megabus tickets, it would have been a wiser and more rational economic decision to choose Peter Pan over Megabus.

It must, however, be kept in mind that if tickets are booked last-minute, Megabus tickets would have risen even more, and even Peter Pan increases price for last-minute tickets as those are relatively inelastic. Therefore, it is always a smarter option for Mount Holyoke girls to book their tickets in advance!