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what bus companies can teach us

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legal warning: The information here should not be understood legally as financial advice. If you believe anything on this site is in error, please contact me. I am always open to corrections, new ideas, and new opinions...

Once every now and then, I witness an economic plan so brilliant that it simply puts me in awe.  Amid a world of cheesy jingles, repetitive commercials, and tried and true marketing plans, there are companies that really think outside of the box.  And it’s not like the economic plan I am about to discuss is to my benefit; as you’ll see, it works entirely against me.  But while I cannot declare defeat, I still tip my hat to two public fleets of horseless chariots, Dan and Kavim.

It all started with the רב-קו.  About a year or two ago, Kavim and Dan began offering a card that would allow passengers to prepay for busses, the רב-קו.  This card would enable many passengers to board a bus and pay without having to search their pockets for change.  As a result, busses spent less time at stops, drivers could focus on the roads instead of looking for change, and if this wasn’t enough, Kavim and Dan offer an additional 20% discount for all people using the רב-קו (when a person puts ₪ 50 into the רב-קו, it is considered as if he or she put in ₪ 62.50, giving the passenger more money to use, but effectively giving a 20% discount.)

But the רב-קו has another, much more important use.  By having passengers only pay for the bus once every few weeks when they recharge their cards, passengers no longer pay attention to the amount they are paying per ride.  This has two benefits for Dan and Kavim (1) passengers may take more busses, not noticing how it depletes the amount in their card and (2) it allows Dan and Kavim to jack up the rates without anyone noticing.  In economic terms, passengers tend to spend more when they do not notice the marginal cost.

Teaching the consumer to ignore the marginal cost allows the consumer to turn a blind eye most of the time and lead to tremendous increase in spending.  Conversely, if the public truly wanted to see a reduction in the usage of a good or service, the best thing would be to have the consumer actively pay for it more often.  Imagine how you would control your water usage if you had to pay your water bill at the end of every day.  Imagine how you would curb your electricity usage if you had to feed a meter, the way people did many years ago.

What really is catching my eye is the extent to which Dan and Kavim are going to make consumers more and more insensitive to price.  A few months ago, when a passenger used a רב-קו, the bus driver would print out a receipt, which would contain how much the passenger paid and how much is left on the רב-קו.  Nowadays, drivers no longer print out a receipt unless requested.  Dan and Kavim are willing to forgo any lost revenues by people who sneak onto busses in order to ensure that no one has a ticket and that those who do pay become increasingly insensitive to the price.  In contrast, Egged spends thousands hiring guards to board busses and check receipts while making their drivers pay enormous fines if a single passenger is missing his receipt.  Dan and Kavim have uncovered a simple economic fact: the gain of price insensitivity greatly outweighs a couple of hundred free riders; seeking out enormous potential profit is worth much more it than plugging a few holes.

As a single consumer, I am powerless against Dan and Kavim.  I cannot ignore using the רב-קו; I would just be paying 20% more and not proving anything to anyone.  All I can do is advise that if you ride Dan and Kavim busses, always ask for a receipt and try to be sensitive to price.

More importantly, I think it is worth learning from Dan and Kavim.  Sometimes it is more important to look for new prospects than plug existing holes.   Driving yourself crazy to chase down every little bargain and pay the least for everything is not worth as much as allowing some flexibility and utilizing your time more wisely.  Next time you’re on vacation, instead of just going according to plan, allow for skipping some stops and exploring new possibilities as you see them.  Managers, instead of micromanaging your workers, allow some flexibility; your workers are likely to pay you back with a redoubled work effort.  Sometimes when you give an inch, you really will get a mile.


3 Comments

  1. Wogo says:

    Another huge benefit to the bus companies which you didn’t mention is that every time you recharge your card you’re essentially giving Dan/Kavim an interest-free loan.

    For people who drive cars instead of taking busses, the “EZ-park” works on the same principle with the same cost/benefit.

  2. Shlomo says:

    Bus fares are set by the government, which every few years auctions off groups of bus lines to the best bidder (lowest fares, most frequent/extensive service), and adjusts fares periodically for reasons like gas price changes. So the concerns in this post are unfounded.

    • jonnydegani says:

      Saying that the government sets fares independent of the bus companies is like saying that the US congress writes laws independent of lobbying groups. The bus companies in Israel are a duopoly and quite possibly a cartel. How much bidding goes on between just a few companies, especially,when the lines and logistics are already established?

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