Fay Dunkerley () (CES – KU Leuven, Belgium) André de Palma () (THEMA, Univ de Cergy Pontoise, France & ENPC) Stef Proost () (CES – KU Leuven, Belgium, CORE, Belgium)
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We study the problem of a city with access to two firms or subcentres (restaurants, airports) selling a differentiated product and/or offering a differentiated workplace. The first subcentre is easily congested (near city centre, access by road), the second less prone to congestion but further away. Both need to attract customers and employees and need to make profits to cover their fixed costs. This is an asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages. This solution involves excessive congestion for the nearby subcentre. Three stylised policies are studied to address this congestion. The first policy is to widen the congested road to the nearby subcentre. The second policy option is to add congestion pricing (or parking pricing etc.) for the congested subcentre. The third policy is to provide a direct subsidy to the remote subcentre so that it can reduce its price. We illustrate the theory using a numerical model applied to the two Brussels airports.
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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number
2007-14.
Find related papers by JEL classification: L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection R41 - Urban, Rural, and Regional Economics - - Transportation Systems - - - Transportation: Demand, Supply, and Congestion R13 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
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