When Metro board member Malcolm Augustine argued against Metro’s fare hikes last month, he called the planned price increase a violation of the simplest business good practices.
“This is basic economics. You’re raising the price, and you’re going to lose riders,” Augustine said. “That’s a bad business move.”
But the long-term effects of fare increases might be a lot more complicated than Augustine’s forecast — at least according to Daniel Lin, a professorial lecturer of economics at American University.
Lin might be the perfect person to speak to this issue, because “basic economics” is his specialty: He teaches “Econ 200: Introduction to Microeconomics,” the entry-level economics survey course at American University.
And he’s got an unexpected angle on the transit agency’s ability to retain riders in the coming years — an angle that involves tasty buffalo chicken wings.
For context: Starting July 1, riding Metro is going to get more expensive. Peak-period rail fares will increase 10 cents, with $2.25 as the new minimum and $6 as the maximum one-way fare. Off-peak fares will increase a quarter; bus fares also will increase 25 cents, to $2.
But a big question remains: Will the fare hikes have a significant effect on ridership?
Some have argued that upping the cost of a ride on a train or bus is the only way to garner enough cash for the transit agency to cover its costs for the coming year and make upgrades that could improve future service. But, Augustine pointed out at a board finance meeting last month, Metro also runs the risk of further alienating customers whose loyalty to the system has eroded after years of unreliable service, safety lapses and 10 months of SafeTrack disruptions.
On the surface, Augustine’s take seems to make sense. As a general rule, higher prices reduce demand.
But it comes down to the question of elasticity, a.k.a. the level of responsiveness that consumers demonstrate when faced with fluctuations in price.
The good news: Metro service may have gotten so bad that current fare elasticity is likely pretty low. Among Metro’s legions of long-suffering riders, those with convenient transportation alternatives — people who are comfortable biking, have the money to pay for daily door-to-door rideshare services, or people who own cars and have access to affordable parking — have probably already grappled with the question of whether to abandon Metro. The remaining riders who continue to rely on the trains are a relatively captive audience.
In short: If Metro’s remaining riders have suffered this much so far, another 10 cents probably won’t make a difference, at least immediately.
But in the long-term, it’s a different story, Lin said.
“The question for Metro is: How many plausible substitutes are there for their service?” he said. “And if the quality of service is dropping, and people are becoming fed up with it, that’s one of the dangerous parts of increasing the fares — things that you would normally think of as implausible substitutes start to become plausible.”
Enter the chicken wings.
It’s a real-life economic parable that Lin often uses in his lectures to college students, and he says it could be useful in thinking about transit fares. Historically, he said, chicken wings have been the least expensive cut of poultry — that’s why they’re a staple of cheap bar food offerings and happy hour specials. But, in the last decade, drought conditions have led farmers to begin limiting the number of chickens they raise (fewer mouths to feed) and instead focus on increasing the size of the chickens farmed.
These farmers end up with the same amount of meat, but with fewer chickens … and fewer chicken wings. The price of wings started creeping higher and higher.
In the short-term, Lin said, chicken wings are relatively inelastic. If you’re a sports bar throwing a Super Bowl party, or a business where “wings” are part of the name, you need to be able to offer wings to customers. No exceptions.
But after a while, Lin said, restaurateurs started coming up with work-arounds. They noticed that, as wings got more expensive, chicken breasts became more affordable. And they came up with a solution: the invention of the boneless chicken wing. (Which, to be clear, is not a wing at all. It’s artfully cut breast.)
The New York Times wrote about this phenomenon in 2009,
… And in restaurants from Sarasota to Seattle, an improbable poultry part is showing up on menus: a little chunk of chicken breast that is fried and sauced and sold, with marketer’s brio, as a “boneless wing.”
All this is happening because wholesale chicken prices have turned upside down. The once-lowly wing is selling at a premium over what has long been the gold standard of poultry parts, the skinless boneless chicken breast.
The idea caught on. Boneless chicken wings became ubiquitous. Demand for wings began to taper. And the inelasticity of one product, it turned out, became a lot more elastic quite quickly.
“In the long run, ingenuity takes over,” Lin said, “and people come up with unexpected solutions.”
But what’s that got to do with Metro?
Lin argues that the same principle applies to Metro’s fare hikes. You may not see a dramatic decline in Metro ridership on July 2 as throngs of riders suddenly decide that a 10- to 25-cent increase is too much for them to afford, he said. But, if you give people enough time, many will start to find creative solutions to their commuting gripes.
We’ve already seen this during SafeTrack: Riders displaced by weeks-long train service interruptions have tried out alternate modes such as Metrobus, the Fairfax Connector and VRE — or taken the plunge and started walking or biking to work. For some, it’s become a permanent change in their daily commute.
And when you’re talking about long-term fare increases, rather than the temporary pain of SafeTrack, the possibilities for creative alternatives become even more expansive. People can move closer to work so they don’t need to rely on Metro. They can buy a car or a bike. They can establish new agreements with their employers allowing them to work from home.
So, for Metro, the future of ridership revenue is a race, of sorts. The agency must hurry to improve service, and to give people a reason to stick with the system before their ingenuity kicks in and they find a convenient alternative to Metro.
“In the long run, you give people enough time, and they tend to come up with all sorts of substitutes,” Lin said. “The amount of hard-core, highly loyal customers is almost always smaller than you think it is.”