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Estimating Switching Costs in Urban Travel Demand in Chicago


I investigate the effect of switching costs in the transportation market in Chicago. Demand is represented by a continuum of agents that are persistently heterogeneous and forward looking. Each period agents may choose among car use, public transportation or an outside option. Consumers incur a fixed cost every time they decide to switch from one mode of transportation to another. In subsequent periods, no switching costs are incurred if the agent chooses the same mode of transportation. I structurally estimate the dynamic discrete choice model using monthly data on ridership, traffic volume counting, and gasoline prices over the period 2001-2009. The results show that car switching cost (the cost incurred when switching from car to public transit) are higher than public transit switching cost (the cost incurred when switching from public transit to car), both in monetary terms ($21.41 against $1.66, respectively) and as a percentage of the monthly cost of using that mode of transportation (13.21% against 1.89%, respectively). Finally, I estimate gasoline price and public transit fare elasticities to assess the economic significance of the results.