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Agent-Based Model of Price Competition and Product Differentiation on Congested Networks

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  • Lei Zhang
  • David Levinson

    ()

  • Shanjiang Zhu

    (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)

Abstract

Using consistent agent-based techniques, this research models the decision-making processes of users and infrastructure owner/operators to explore the welfare consequence of price competition, capacity choice, and product differentiation on congested transportation networks. Component models include: (1) An agent-based travel demand model wherein each traveler has learning capabilities and unique characteristics (e.g. value of time); (2) Econometric facility provision cost models; and (3) Representations of road authorities making pricing and capacity decisions. Different from small-network equilibrium models in prior literature, this agent-based model is applicable to pricing and investment analyses on large complex networks. The subsequent economic analysis focuses on the source, evolution, measurement, and impact of product differentiation with heterogeneous users on a mixed ownership network (with tolled and untolled roads). Two types of product differentiation in the presence of toll roads, path differentiation and space differentiation, are defined and measured for a base case and several variants with different types of price and capacity competition and with various degrees of user heterogeneity. The findings favor a fixed-rate road pricing policy compared to complete pricing freedom on toll roads. It is also shown that the relationship between net social benefit and user heterogeneity is not monotonic on a complex network with toll roads.

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File URL: http://nexus.umn.edu/Papers/AgentPriceCompetition.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by University of Minnesota: Nexus Research Group in its series Working Papers with number 200809.

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Date of creation: 2007
Date of revision:
Publication status: Published in Journal of Transport Economics and Policy Sept. 2008 42(3) Pages 435-461.
Handle: RePEc:nex:wpaper:agentpricecompetition

Contact details of provider:
Postal: Dept. of Civil Engineering, 500 Pillsbury Drive SE, Minneapolis, MN 55455
Phone: +01 (612) 625-6354
Fax: +01 (612) 626-7750
Web page: http://nexus.umn.edu
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Related research

Keywords: Network dynamics; road pricing; autonomous links; privatization; price competition; product differentiation; agent-based transportation model;

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References

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  1. DE BORGER, Bruno & DUNKERLEY, Fay & PROOST, Stef, 2006. "The interaction between tolls and capacity investment in serial and parallel transport networks," CORE Discussion Papers 2006113, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. David Levinson, 1999. "Tolling at a Frontier: A Game Theoretic Analysis," Working Papers 199904, University of Minnesota: Nexus Research Group.
  3. Small, Kenneth A. & Yan, Jia, 2001. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," Journal of Urban Economics, Elsevier, vol. 49(2), pages 310-336, March.
  4. Mokhtarian, Patricia L. & Chen, Cynthia, 2004. "TTB or not TTB, that is the question: a review and analysis of the empirical literature on travel time (and money) budgets," Transportation Research Part A: Policy and Practice, Elsevier, vol. 38(9-10), pages 643-675.
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  6. David Levinson, 2000. "Revenue Choice on a Serial Network," Working Papers 200001, University of Minnesota: Nexus Research Group.
  7. Wuping Xin & David Levinson, 2006. "Stochastic congestion and pricing model with endogenous departure time selection and heterogeneous travelers," Working Papers 000029, University of Minnesota: Nexus Research Group.
  8. Lei Zhang & David Levinson, 2004. "An Agent-Based Approach to Travel Demand Modeling: An Exploratory Analysis," Working Papers 200405, University of Minnesota: Nexus Research Group.
  9. Meng, Q. & Yang, H. & Bell, M. G. H., 2001. "An equivalent continuously differentiable model and a locally convergent algorithm for the continuous network design problem," Transportation Research Part B: Methodological, Elsevier, vol. 35(1), pages 83-105, January.
  10. David Levinson & Ramachandra Karamalaputi, 2003. "Induced Supply: A Model of Highway Network Expansion at the Microscopic Level," Working Papers 200304, University of Minnesota: Nexus Research Group.
  11. Poorzahedy, Hossain & Turnquist, Mark A., 1982. "Approximate algorithms for the discrete network design problem," Transportation Research Part B: Methodological, Elsevier, vol. 16(1), pages 45-55, February.
  12. Small, Kenneth A., 1992. "Using the Revenues from Congestion Pricing," University of California Transportation Center, Working Papers qt32p9m3mm, University of California Transportation Center.
  13. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1992. "Route choice with heterogeneous drivers and group-specific congestion costs," Regional Science and Urban Economics, Elsevier, vol. 22(1), pages 71-102, March.
  14. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1993. "A Structural Model of Peak-Period Congestion: A Traffic Bottleneck with Elastic Demand," American Economic Review, American Economic Association, vol. 83(1), pages 161-79, March.
  15. Erik T. Verhoef, 2000. "Second-Best Congestion Pricing in General Networks - Algorithms for Finding Second-Best Optimal Toll Levels and Toll Points," Tinbergen Institute Discussion Papers 00-084/3, Tinbergen Institute.
  16. Liu, Louie Nan & McDonald, John F., 1999. "Economic efficiency of second-best congestion pricing schemes in urban highway systems," Transportation Research Part B: Methodological, Elsevier, vol. 33(3), pages 157-188, April.
  17. Verhoef, Erik T., 2002. "Second-best congestion pricing in general networks. Heuristic algorithms for finding second-best optimal toll levels and toll points," Transportation Research Part B: Methodological, Elsevier, vol. 36(8), pages 707-729, September.
  18. Lei Zhang & David Levinson, 2006. "The Economics of Transportation Network Growth," Working Papers 200710, University of Minnesota: Nexus Research Group.
  19. Small, Kenneth A., 2001. "The Value of Pricing," University of California Transportation Center, Working Papers qt0rm449sx, University of California Transportation Center.
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Cited by:
  1. McDonnell, Simon & Zellner, Moira, 2011. "Exploring the effectiveness of bus rapid transit a prototype agent-based model of commuting behavior," Transport Policy, Elsevier, vol. 18(6), pages 825-835, November.

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