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Competition in multi-modal transport networks: A dynamic approach

  • van der Weijde, Adriaan Hendrik
  • Verhoef, Erik T.
  • van den Berg, Vincent A.C.

We analyze the behavior of market participants in a multi-modal commuter network, where roads are not priced, but public transport has a usage fee, which is set while taking the effects on the roads into account. In particular, we analyze the difference between markets with a monopolistic public transport operator, which operates all public transport links, and markets in which separate operators own each public transport link. To do so, we consider a simple dynamic transport network consisting of two serial segments and two parallel congestible modes of transport. We obtain a reduced form of the public transport operator’s optimal fare setting problem and show that, even if the total travel demand is inelastic, serial Bertrand–Nash competition on the public transport links leads to different fares than a serial monopoly; a result not observed in a static model. This results from the fact that trip timing decisions, and therefore the generalized prices of all commuters, are influenced by all fares in the network. We then use numerical simulations to show that, contrary to the results obtained in classic studies on vertical competition, monopolistic fares are not always lower than duopolistic fares; the opposite can also occur. We also explore how different parameters influence the price differential, and how this affects welfare.

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Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

Volume (Year): 53 (2013)
Issue (Month): C ()
Pages: 31-44

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Handle: RePEc:eee:transb:v:53:y:2013:i:c:p:31-44
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  9. Eric Pels & Erik T Verhoef, 2007. "Infrastructure pricing and competition between modes in urban transport," Environment and Planning A, Pion Ltd, London, vol. 39(9), pages 2119-2138, September.
  10. Richard Arnott & Elijah DePalma, 2010. "The Corridor Problem: Preliminary Results on the No-toll Equilibrium," Working Papers 201003, University of California at Riverside, Department of Economics, revised Jan 2010.
  11. 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.
  12. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-23, March.
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