Monday, May 13, 2013

The economics of a Singapore-Kuala Lumpur journey

A bus ticket from Singapore to Kuala Lumpur costs S$30.
A bus ticket from Kuala Lumpur to Singapore, same company, same time and day, will cost you RM45, or S$18.
Why the price difference?

As an economist, I can think of various possible answers.

Purchasing power in Malaysia is lower than that in Singapore, so individuals living in Malaysia should be expected to pay less than those living in Singapore. According to, consumer prices in Singapore are 94.22% higher than in Malaysia. So individuals making the return trip from Singapore to Kuala Lumpur (KL) could be expected to pay less, in absolute terms, than individuals living in KL and doing the inverse trip.

Singapore's regulation requiring cars and buses travelling out of Singapore to fill their tankers at the ¾ could mean that the trip out of Singapore is more expensive to the bus company than the trip out of KL, resulting in a higher cost of the Singapore-KL journey. Taxes and duties make up to 30% of pump prices in Singapore. Every year, Malaysia spends US$14bn subsidising gasoline. The result is cheaper gasoline in Malaysia compared to Singapore. To prevent arbitrage, the Singapore government requires all motorised vehicles leaving the city state to have tanks full at the ¾. This could mean the cost of a Singapore-KL trip is higher than that of the inverse journey, where buses will fill up tanks cheaply in KL and make their way to Singapore running on cheap petrol. In most business models, higher costs mean higher prices, so Singapore-KL should cost more than KL-Singapore.

More travellers make the Singapore-KL journey than the KL-Singapore one. This could be a possible answer due to Singapore's role and position as a global hub. However, it rests on the initial hypothesis that more travellers arrive in Southeast Asia through Singapore rather than leave from Singapore. The reasoning goes as follows. Singapore is regional transport hub: the world's largest harbour, the region's largest airport. Singapore is often the main point of entry of foreigners to the region. Foreigners could be more likely to make their way out of Singapore towards the peninsula via land rather than air, due to the ease of bus and car travelling. Consequently, one could hypothesise that buses towards KL are fuller than those towards Singapore. (Checking this hypothesis would be rather easy, just by asking a few bus operators)

Whatever the correct answer, the lesson to remember is to not buy a return trip when leaving Singapore – cheaper is to buy it in KL when you arrive!