J lagerlf u of copenhagen microeconomics mikk 3 l2 ii

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Unformatted text preview: q-distance under SB I The …rst-class service level is the same under …rst and second best, whereas the second-class service level is distorted downwards. The intuitive reason: I The intended …rst-class passengers mustn’ want to buy t second-class tickets instead, so let’ make second class s su¢ ciently uncomfortable! This logic was fairly accurately described already in the mid 19th century by the French engineer Jules Dupuit (1804-1866). J. Lagerlöf (U of Copenhagen) Microeconomics (MikØk) 3: L2-II Spring ‘ 11 21 / 29 Fully Non-Linear Tari¤: Dupuit’ Conjecture (1/3) s In 1849 and 1853 Dupuit wrote* the following about the practices of railway companies: Only too often does the sight of third-class passengers travelling in open or poorly sprung carriages, and always badly seated, raise an outcry against the barbarity of the railway companies. It wouldn’ cost much, people say, to t put down a few yards of leather and a few pounds of horse hair, and it is worse than avarice not to do so. [* Quoted in Beard and Ekelund (1991), “Quality Choice and Price Discrimination: A Note on Dupuit’ Conjecture”, Southern Economic Journal 57: s 1155-1163 — Not part of the syllabus!] [“avarice” = extreme greed for wealth] J. Lagerlöf (U of Copenhagen) Microeconomics (MikØk) 3: L2-II Spring ‘ 11 22 / 29 Fully Non-Linear Tari¤: Dupuit’ Conjecture (2/3) s But a bit further down the text, Dupuit explains the reason for why, according to him, there is such a large quality di¤erence between third- and second-class: It is not because of the few thousand francs which would have to be spent to put a roof over the third-class carriages or to upholster the third-class seats that some company or other has open carriages wit...
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