Ferry Fare Cap After the Bridge Closure

At the $6 cap, quantity demanded is 1,250 and quantity supplied is capacity, 900. Shortage = 1,250 - 900 = 350 seats/day. At $8, demand is 1,050, so shortage = 150. At $10, demand is 850, below capacity 900; there is no excess demand, and there would be 50 unused seats. A $10 cap therefore clears the market only by pricing out 400 seats of demand compared with $6. The $14 secondary price is above the $6 legal price, which is the classic sign of a binding price ceiling: the seat is scarce and its marginal value to some travellers exceeds the cap. The observed price of $6 therefore understates the real cost of travel, which includes queuing, waiting lists, agent fees and favours. If the cap were removed to $10, the queue should shrink, but the operator's revenue per seat rises and passengers who value the seat below $10 are excluded. The secondary market would lose most of its profit opportunity once the legal fare approaches the market-clearing level. This is a rationing effect, not an increase in seat capacity.

At $6 the operator carries 900 and earns 900 x $6 = $5,400/day in fares. A $3 per-passenger subsidy on carried passengers costs 900 x $3 = $2,700/day and raises operator receipts to $8,100/day. But the subsidy does not add a vessel for 18 months, so demand remains 1,250 and the 350-seat shortage persists. It may improve the operator's cash flow, but it does not clear the queue. At $10, carried traffic is 850 and fare revenue is $8,500/day, with no subsidy. The fare is 67% higher than $6, and actual trips fall by 50 relative to the cap, even though the queue falls. Demand is inelastic between $6 and $8: quantity falls 200/1,150 = 17.4% while price rises 2/7 = 28.6%, so |E| is about 0.61. Between $8 and $10, |E| is about (200/950)/(2/9) = 0.95. Because demand is inelastic, higher fares raise revenue. Equity matters: the $6 cap protects the cash-poor, but queuing and $14 resale shift the real cost onto those with time or contacts. A $10 cap is more transparent but may exclude low-income residents. A targeted concession for residents, combined with capacity investment, would likely be better than a blanket subsidy that leaves the shortage intact.

Two likely mechanisms are queuing/first-come-first-served and favoured access through agents, employees or social connections. Queuing rations by time: passengers arrive early or wait, so the cost is paid in lost time rather than fares. Those with inflexible jobs or caring duties are disadvantaged, and the queue can be inefficient because waiting creates no output. Favoured access and resale ration by willingness to pay and by connection: freight agents buy seats at $6 and resell at up to $14, capturing the scarcity rent. This can improve allocative efficiency in one narrow sense because seats go to those who value them most, but it undermines the equity purpose of the cap and creates rent-seeking. Both mechanisms mean the observed fare is not the full price. The cap suppresses the price signal that would normally call forth capacity, so the shortage persists until a second vessel arrives or the cap is relaxed.