Thursday, October 25, 2012

The Culprit Behind Traffic Congestion

Written by Kaiwen C.

Article is written based on the text in this Link

After coming back to Malaysia from overseas, I always wonder why the traffic always is so congested. Looking through the internet I came across some answers such as “too many cars”, “roads are not wide enough” and most stating that the main reason is “accidents”. Those reason all makes sense, but I believe that the main reason of the problem is the poor public transportation system, causing a chain reaction to people buying more cars. In addition to poor infrastructure planning, the road cannot grow in pace with the increasing cars on the road. 

It might not make sense thinking that the failure in public transport can cause so many chain reactions; hence I will analyze this issue using an economic point of view using bus systems as the main example. Looking around the Kuala Lumpur region, there’s only a few bus operators such as Rapid KL, Cityliner, etc. Since there are only a small number of firms that are competing in the market, this can be classified as an Oligopoly. 

Take a look back in time, the bus system consist of both mini buses and normal buses. And for mini bus, anyone can be a bus driver as long they have a bus driving license. And the bus operator would need to obtain a specific route license to operate. Even though the bus operator must have a special license, the barriers for entry are still low. This can be classified more of a perfectly competitive market. 

Assuming that the market structure of the bus services is as analyzed above, the change in market structure is more likely caused by the changes in government policy towards the issuing of bus licenses. Before when there was no limit to apply for the government license, it was not considered a barrier to enter as everyone was eligible to apply. However with a limit set, this can be seen as a legal barrier to enter the market. 

While comparing the difference between the two market structure, price is an inevitable factor to analyze. When the bus services are in a perfect competition market, everyone are price takers as they do not dare to take the risk of increasing or lowering the price, the price for bus fares are usually at the price range where both bus service provider and the bus service consumers can accept. Bus operators take their prices from the bus association which set their prices according to the equilibrium of the market and government. Whereas in an oligopoly, the pricing is more moderate compared to a monopoly due to the existence of competition, but still much higher than a perfect competition. We can interpret that the price is the equilibrium between the demand and supply of a market. After the change in structure the price of bus fares should increase. 

The price of the bus fare before cost around RM 0.50, whereas now it cost from RM 1.00 up to RM 3.00 depending on the distance. However, the reason of the increase in bus fare is more likely due to inflation. Hence a question arises: Why after the change in market structure, the change in price for bus fare wasn’t much affected? 

This can be explained that the bus services price is still under the control of the bus association. Whereas in order to increase the bus fares, the bus association have to apply for an increase to the government. However in order to satisfy the public instead of the individuals that own the bus companies, the government controls the price tickets for buses at a lower price. This is probably also another reason why many privately owned bus companies closed down due to insufficient fund and low profit. As a result, the market structure for bus services shifts more towards an oligopoly. The concept of price control is similar to a price cap, where limit is set towards how much one can charge in a particular market. And also it will cause inefficiency in the market similar to how price cap does. 

With controlled price imposed, private bus companies will exit the market as the profitability will decrease by a huge margin and might even cause a loss. Controlled price makes the price for bus services reduce resulting in a decrease in supply and an increase in demand. The supply of bus services is already really scarce as mentioned in the first part of this article. As the quantity demanded is higher than the quantity supplied, a shortage will occur (QD – QS). 

However, the demand for buses aren’t that high anymore. This can be explained by the change in number of consumers. In short, the market size of bus services is shrinking. Instead of using public transport, a big portion of the consumer chooses to personally own their transportation. Personal cars become a substitute for buses in this case. Hence resulting in “too many cars” as mentioned before. 

The failure in public transport was able to affect the personal car market by increasing its demand. The government took advantage of the increase of demand to promote the automobile industry in Malaysia. By imposing higher tax on imported cars, local manufactured cars have a better competitive edge compared to imported cars. 
However, the implementation of taxes is inefficient. As shown in the graph, a deadweight loss occurs and the victim of the loss is both the customers and the supplier. Due to the implementation of tax, the price increases, and the quantity demand decreases. On the other hand, the quantity supplied remains the same, resulting in a social loss as resources are wasted on products that the society does not value. 

If I were to classify transportation as a firm, it is inefficient in terms of short run. However achieving efficiency in a long run is not impossible. In the short run, cars are considered as a variable factor and the roads are considered as a fixed factor. But in the long run, both cars and roads are variable factors. Sadly, the roads are not built or expanded in Malaysia. The fault lies within poor infrastructure planning by the government. Another possible reason is that the actual problem in every big city is that there are too many cars entering the city even though infrastructure was well planned. 

In conclusion, the situation of traffic congestion can be improved only if the government had a better infrastructure and administration planning. But the real problem lies on the number of cars itself. There are too many cars on the road due to the failure in public transport. As the Prime Minster recognize that “An efficient public transport system is crucial for the development of the community”. I do not foresee that in budget 2013, the implementation of Prasarana Rapid bus services can improve the condition of public transport in Malaysia. I strongly believe if the public transport is not interfered by the Government, it could possibly improve the public transport system. By doing so, it will turn the public transport market back into a perfectly competitive market. Like before the government intervened, the market is efficient and both suppliers and consumers will benefit the fullest of their surpluses.

1 comment:

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