M ICROECONOMIC P ERSPECTIVE

In this section, I reviewed our viewpoints from microeconomic perspective. Bus transport firms are divided into public and private transit firms whose responsibilities and aims are different. The public bus transport firms focus on the social welfare-maximize.

On the other hand, the private bus transport firms pursue the revenue-maximize. Most researchers focus on general urban transport issues. Because of special transport, paratransit is easily neglected. However, I attempt to realize and establish our model through market, product and price competition as same as industrial organization (Tirole, 1988). I interpret the markets of DRTS, competition theories with respect to price and product.

2.3.1 Markets of DRTS

Most of transport mode of DRTS belongs to supplement transport mode because market share is too little to be easily neglected by citizens. However, in recent decade, the elderly population in Taiwan is estimated to be 2 million and approximately 9% of the population in 2018, it is necessary to develop and provide a flexible and cost-effective public transportation service to people living in rural areas (Chang, Cho, & Chen, 2010).

The necessity of DRTS needs to be reconsidered. Actually, the promotion of transport mode of DRTS is very difficult because the transport operators must invest the fixed cost.

Furthermore, the transport operators hardly recover the acquisition cost because the market share is too little.

The result is that operators are not willing to entry this market. Because of solving the problems the government brings to the policy to support the transport operators through strategy that subsidizes fare to operators. On the other hand, the government could subsidize price to riders due to increasing the utility rate of riders. I use the market strategy

and attempt to improve the insufficient utility rate of riders.

2.3.2 Monopolistic Competition

Charmberlin (1933) termed his model monopolic competition and pointed out the monopolistic competition is concerned “not only with problem of an individual equilibrium (the ordinary theory of monopoly), but also with that of a group equilibrium (the adjustment of economic forces within a group of competitors)”. In this model, each firm produces a slightly differentiated product and entry is clostless. Hart (1985) used the Charmberlin’s model to apply that many consumers with different tastes over the large number of potential commodities available, where each firm produces a distinct commodity. Dixit and Stiglitz (1977) researched the potential brands in a group are good substitutes among themselves, however poor substitutes for the other brands in the economy and depended on the intra- and inter-sector elasticity of substitution to examine the market solution in relation to an optimum, both regards biases within the group, and between the group and the rest of the economy. Spence (1976) investigated the effects of fixed costs and monopolistic on the selection of products and product characteristics in a set of interacting markets.

2.3.3 Product Differentiation

Derivative research of the Charmberlin’s model is product differentiation. Lancaster (1966;1971;1979) developed the characteristics approach to product differentiation.

Product differentiation substitutes are dispersed in a space of characteristics. The sellers attempt to possess a quasi-monopolistic position with respect to the customers who most prefer it. On the other hand, the customers will pay a transportation cost because the customers find his or her ideal product. Product differentiation in terms of competition market could generally differentiate between horizontal and vertical product differentiation.

The horizontal product differentiation is two variants of a product that are sold at the same price and some customers choose the one product while the others buy the alternative product. The vertical product differentiation is the same products that are sold at the same price. However, one of product is higher quality than the other one. It seems like in the case of a standard and a luxury product (Bell & Katsoulacos, 1991; Anderson, Palma, &

Thisse, 1992; Gabszewicz & Thisse, 1992).

Eaton and Lipsey (1989) used two methods that are the address branch and the non-address branch to solve problems with respect to customer’s preference. Vives (1985;

2001) established n varieties in a differentiated product and used a well-established idea

that Bertrand (price) competition is more efficient than Cournot (quantity) competition to generalize the result to a general demand structure and a general symmetric demand structure. Cremer, Marchand, and Thisse (1991) analyzed a mixed oligopoly that is public and private firm with horizontal product differentiation. As a result, when or n sufficiently large a mixed oligopoly with one public firm is socially preferable to the private oligopoly.

2.3.4 Oligopoly

Cournot (1838) is an ancestor who established the foundations of oligopoly theory, suggested a solution concept for oligopolistic interaction, examined both the case of substitute, complementary products and researched the stability of the proposed solution.

Edgeworh modified Cournot’s idea, particularly, the assertion that equilibrium is determinate in oligopoly. His central idea is that in situations of fewness in numbers, in oligopoly, and in contrast monopoly or perfect competition, equilibrium is indeterminate.

Stigler (1964) assumed oligopolists wish to collude to maximize joint profits and proved the hypothesis with a modest amount of empirical evidence. Dixit (1980) developed the oligopoly theory with illustration and elucidated some game-theoretic ideas.

Friedman (1983) argued that oligopoly theory consists of the nature of strategic interactions and the character of equilibrium choices for firms; furthermore, he considered that the best policy for a firm relies on the overall policies being followed by each adversary in the competition market.

Brander and Lewis (1986) examined the relationship between financial and output decisions in a formal structure capturing essential aspects of both modern financial and oligopoly theory. Eaton and Grossman (1986) analyzed the welfare effects of trade and industrial policy under oligopoly and characterized optimal intervention under a variety of hypothesis about market structure and conduct.

Daughety (1988) attempted to examine the Cournot model with respect to many of the classical and recent analyses of market behavior.

2.3.5 Duopoly

Duopoly is most simple model in oligopoly theory. Oligopoly is few firms that might be collusion in the market in order to increase the price. Bertrand (1883) supposed that there are two holders who disposed to give some part of it in order to obtain the opposite side of good. He established this model to solve the stable equilibrium price. Chamberlin (1929) argued what kind of price in determinate between monopoly and competition,

where the number of merchant in a market is greater than one, but not great enough to make the affect of any one the upon the market price. Stigler (1940) analyzed classical duopoly problem that is based on three assumptions, i.e., a homogeneous commodity; two merchants of nearly equal proportion; and full information by each of the duopolists of their cost function and of the market demand function. Pigou (1948) provided a comment for duopoly market. He also argued what kinds of relation between two firms would allow an equilibrium situation to emerge; furthermore, admit an asymmetrical equilibrium situation to emerge. Henderson (1954) extended a duopoly problem of value theory and provided a solution by game theory. He listed the objections to the estimate that the maximization of joint profits is a sufficient solution to the duopoly problem.

Bishop (1960) argued that the duopolists continue in reciprocally unsuitable demands upon one another, this have to interpret itself in warfare, which takes them away from their collusion through established general framework.

2.3.6 Price Discrimination

The prototype of the traditional price discrimination is traced back to Pigou (Pigou, 1920). There are three types of price discrimination. The first degree or completed price discrimination includes the charge of different price against all the different units of commodity. Each individual customer is charged the highest price he is willing to pay for each item. The second degree price discrimination or non-linear pricing is according to the different quality of an identical commodity. In other words, each customer is offered the same set of prices, although the price may depend on the quality purchased. Quality discount is an example of the second degree price discrimination. The third degree price discrimination is that a seller faces two or more identifiably different groups of buyers having different demand. Such as a seller can increase profits by setting different prices for the two groups, provided resale can be prevented (Varian, 1989.)

Gabszewicz and Thisse (1992) introduced the location theory that has three types that are mill price competition, discriminatory price competition and nonprice competition.

Phlips (1983) defined that the same commodity is sold at different prices to different consumers. In addition, he separated two criteria from discriminatory price. One is that the same commodity is sold, say an entrance ticket to ride a bus. Elderly, impaired people, student and children receive a discount. Discrimination is revealed, for instance, when people take an airplane for flying tourist class discover that first-class passengers enjoys a service that is much better than is proved by the difference between economic and

first-class fare. The other is that the same commodity is sold at different prices to different consumers. For example, the seller attempts to sell the juices in sightseeing place, the price is higher than are sold in the supermarket. The same commodities are sold at the different prices because the sightseeing places are far away the urban agglomeration.