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Auctions for private congestible infrastructures

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  • van den Berg, Vincent A.C.

Abstract

This paper investigates regulation by auctions of private supply of congestible infrastructures in two networks settings: 1) two serial facilities, where the consumer has to use both in order to consume; and 2) two parallel facilities that are imperfect substitutes. There are four market structures: a monopoly and 3 duopolies that differ in how firms interact. The effects of an auction depend on what the bidders compete. With a bid auction, the bidders compete on how much money they transfer to the government. This auction leads to the same outcome as the unregulated game (for a given market structure), since this gives the maximum profit to transfer. An auction on the capacity of a facility leads to an even lower welfare than no regulation, because firms set very high capacities and usage fees. Conversely, an auction on generalised price or number of users leads to the first-best outcome. Moreover, these two auctions are robust: they attain the first-best regardless of whether the facilities are auctioned off to a single firm or to two firms, and for all market and network structures. On the contrary, the performances (relative to the first-best) of the bid and capacity auctions strongly depend on these considerations.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40103.

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Date of creation: 17 Jul 2012
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Handle: RePEc:pra:mprapa:40103

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Keywords: private supply; congestible facilities; auctions; serial facilities; parallel facilities; imperfect substitutes;

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References

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  1. Kurt Van Dender, 2005. "Duopoly prices under congested access," Journal of Regional Science, Wiley Blackwell, vol. 45(2), pages 343-362.
  2. Van Dender, Kurt, 2005. "Duopoly Prices Under Congested Access," University of California Transportation Center, Working Papers qt7xw8c3fn, University of California Transportation Center.
  3. Ubbels, Barry & Verhoef, Erik T., 2008. "Auctioning concessions for private roads," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(1), pages 155-172, January.
  4. Verhoef, Erik T., 2007. "Second-best road pricing through highway franchising," Journal of Urban Economics, Elsevier, vol. 62(2), pages 337-361, September.
  5. Basso, Leonardo J. & Zhang, Anming, 2007. "Congestible facility rivalry in vertical structures," Journal of Urban Economics, Elsevier, vol. 61(2), pages 218-237, March.
  6. Tan, Zhijia & Yang, Hai & Guo, Xiaolei, 2010. "Properties of Pareto-efficient contracts and regulations for road franchising," Transportation Research Part B: Methodological, Elsevier, vol. 44(4), pages 415-433, May.
  7. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1997. "Highway Franchising: Pitfalls and Opportunities," Documentos de Trabajo 15, Centro de Economía Aplicada, Universidad de Chile.
  8. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-60, May.
  9. Acemoglu, Daron & Bimpikis, Kostas & Ozdaglar, Asuman, 2009. "Price and capacity competition," Games and Economic Behavior, Elsevier, vol. 66(1), pages 1-26, May.
  10. Erik T. Verhoef, 2007. "Private Roads," Tinbergen Institute Discussion Papers 07-093/3, Tinbergen Institute, revised 25 Jun 2008.
  11. Bruno De Borger & Kurt Van Dender, 2005. "Prices, capacities and service quality in a congestible Bertrand duopoly," ERSA conference papers ersa05p221, European Regional Science Association.
  12. van den Berg, Vincent A.C. & Verhoef, Erik T., 2012. "Is the travel time of private roads too short, too long, or just right?," Transportation Research Part B: Methodological, Elsevier, vol. 46(8), pages 971-983.
  13. Erik T. Verhoef, 2008. "Private Roads: Auctions and Competition in Networks," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 42(3), pages 463-493, September.
  14. Zhang, Anming & Zhang, Yimin, 2006. "Airport capacity and congestion when carriers have market power," Journal of Urban Economics, Elsevier, vol. 60(2), pages 229-247, September.
  15. Xiao, Feng & Yang, Hai & Han, Deren, 2007. "Competition and efficiency of private toll roads," Transportation Research Part B: Methodological, Elsevier, vol. 41(3), pages 292-308, March.
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Cited by:
  1. Vincent van den Berg, 2012. "Advantaged Bidders in Franchise Auctions," Tinbergen Institute Discussion Papers 12-117/VIII, Tinbergen Institute.

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