Teaching notes: A case on dynamic pricing by Indian railways; Dynamic pricing by single seller (Monopoly)

Abstract

In August 2016, the Indian Railways introduced surge pricing system on premium trains: 44 Rajdhani, 52 Duronto and 46 Shatabdi effective from September 2017. In line with the practice commonly followed by the airlines, under surge pricing the base fare is directly related to the increasing demand. The new pricing, however, was not applicable to premium coach 1AC and executive coaches. Under the new structure, the base fare increased 10 percent for every 10 percent of berths sold subject to a prescribed limit. However, approximately two years after the Railways decided to curtail surge price from 1.5 times to 1.4 times of the base ticket price and completely remove surge pricing from trains with less than 50 percent occupancy. (1) We want to analyze what caused the Railways to introduce dynamic pricing and how railways, despite being the single seller in the limited sense, could not actually be successful in this attempt of surge pricing.