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Product Differentiation on Roads

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  • Erik T. Verhoef
  • Kenneth A. Small

Abstract

The authors explore the properties of various types of public and private pricing on a congested road network, with heterogeneous users, and allowing for elastic demand. The network allows them to model certain features of real-world significance: pricing restrictions on either complementary or substitute links, as well as interactions between different user groups on shared links. They find that revenue-maximising pricing is much less efficient than welfare-maximising pricing, but this difference is mitigated by the product differentiation made possible with heterogeneous users. Ignoring heterogeneity causes the welfare benefits of a policy of current interest, namely second-best pricing of one of two parallel links, to be dramatically underestimated. Unlike first-best policies, secondbest policies are in danger of losing much of their potential effectiveness if heterogeneity is ignored when setting toll levels. © The London School of Economics and the University of Bath 2004

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Bibliographic Info

Article provided by London School of Economics and University of Bath in its journal Journal of Transport Economics and Policy.

Volume (Year): 38 (2004)
Issue (Month): 1 (January)
Pages: 127-156

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Handle: RePEc:tpe:jtecpo:v:38:y:2004:i:1:p:127-156

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Web page: http://www.bath.ac.uk/e-journals/jtep

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Cited by:
  1. Barry Ubbels & Erik Verhoef, 2004. "Auctioning Concessions for Private Roads," Tinbergen Institute Discussion Papers 04-008/3, Tinbergen Institute.
  2. Small, Kenneth A. & Winston, Clifford & Yan, Jia, 2006. "Differentiated Road Pricing, Express Lanes and Carpools: Exploiting Heterogeneous Preferences in Policy Design," Working paper 189, Regulation2point0.
  3. Quentin David & Renaud Foucart, 2012. "Modal choice and optimal congestion," CREA Discussion Paper Series 12-03, Center for Research in Economic Analysis, University of Luxembourg.
  4. Kenneth A. Small, 2009. "Private Provision of Highways: Economic Issues," Working Papers 080917, University of California-Irvine, Department of Economics.
  5. Andre De Palma & Moez Kilani & Robin Lindsey, 2006. "The Economics of Truck Toll Lanes," ERSA conference papers ersa06p896, European Regional Science Association.
  6. Erik T. Verhoef & Andrew Koh & Simon Shepherd, 2008. "Pricing, Capacity and Long-run Cost Functions for First-best and Second-best Network Problems," Tinbergen Institute Discussion Papers 08-056/3, Tinbergen Institute.
  7. Wichiensin, Muanmas & Bell, Michael G.H. & Yang, Hai, 2007. "Impact of congestion charging on the transit market: An inter-modal equilibrium model," Transportation Research Part A: Policy and Practice, Elsevier, vol. 41(7), pages 703-713, August.
  8. Leonid Engelson & Ida Kristoffersson & Mohammad Saifuzzaman & André De Palma & Kiarash Motamedi, 2013. "Comparison of two dynamic transportation models: The case of Stockholm congestion charging," Working Papers hal-00779285, HAL.
  9. Kraus, Marvin, 2012. "Road pricing with optimal mass transit," Journal of Urban Economics, Elsevier, vol. 72(2), pages 81-86.
  10. André de Palma & Robin Lindsey & Fang Wu, 2007. "Private operators and time-of-day tolling on a congested road network," THEMA Working Papers 2007-02, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  11. Ian W.H. Parry, 2009. "Pricing Urban Congestion," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 461-484, 09.
  12. Börjesson, Maria & Eliasson, Jonas, 2012. "Experiences from the Swedish Value of Time study," Working papers in Transport Economics 2012:8, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
  13. André De Palma & Robin Lindsey, 2009. "Traffic Congestion Pricing Methods and Technologies," Working Papers hal-00414526, HAL.
  14. Anderstig, Christer & Berglund, Svante & Eliasson, Jonas & Andersson, Matts & Pyddoke, Roger, 2012. "Congestion charges and labour market imperfections: “Wider economic benefits” or “losses”?," Working papers in Transport Economics 2012:4, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
  15. Jonathan Leape, 2006. "The London Congestion Charge," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 157-176, Fall.
  16. Richard J. Arnott, 2005. "City Tolls – One Element of an Effective Policy Cocktail," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 3(3), pages 5-11, November.
  17. Vincent van den Berg & Erik T. Verhoef, 2010. "Why Congestion Tolling could be good for the Consumer: The Effects of Heterogeneity in the Values of Schedule Delay and Time on the Effects of Tolling," Tinbergen Institute Discussion Papers 10-016/3, Tinbergen Institute, revised 02 Aug 2012.
  18. Barry Ubbels & Erik Verhoef, 2006. "Governmental Competition in Road Charging and Capacity Choice," Tinbergen Institute Discussion Papers 06-036/3, Tinbergen Institute, revised 10 Sep 2007.
  19. Börjesson, Maria & Kristoffersson, Ida, 2012. "Estimating welfare effects of congestion charges in real world settings," Working papers in Transport Economics 2012:13, CTS - Centre for Transport Studies Stockholm (KTH and VTI).

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