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Competition between highway operators: can we expect toll differentiation?

  • Paul Calcott

    (School of Economics and Finance, Victoria University of Wellington, New Zealand)

  • Shuntian Yao

    (Division of Applied Economics, Nanyang Technological University, Singapore)

Registered author(s):

    Where there are alternative roads to the same destination, competition between profit maximizing road operators is possible. Tolls on such roads could perform two welfare enhancing functions; discouraging excessive driving and allocating drivers between roads. The second of these functions will typically require some roads to be more expensive to drive on, and to be less congested, than others. Bertrand equilibrium will not always peform this second function. It may fail to allocate the most impatient drivers to less congested roads, as it does not always deliver toll differentiation. The performance of this second function is dependent on the first. That is, whether or not competing roads will be differentiated by tolls and congestion, will depend in part on the importance of discouraging marginal drivers. The equilibrium will not generally be fully efficient, but will often provide efficiency gains over other decentralized options.

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    File URL: http://www.ntu.edu.sg/hss2/egc/wp/2005/2005-04.pdf
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    Paper provided by Nanyang Technological University, School of Humanities and Social Sciences, Economic Growth Centre in its series Economic Growth Centre Working Paper Series with number 0504.

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    Length: 20 pages
    Date of creation: Apr 2005
    Date of revision:
    Handle: RePEc:nan:wpaper:0504
    Contact details of provider: Postal: Nanyang Drive, Singapore 637332
    Fax: 6795 5797
    Web page: http://egc.hss.ntu.edu.sg/

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    1. Small, Kenneth A., 2001. "The Value of Pricing," University of California Transportation Center, Working Papers qt0rm449sx, University of California Transportation Center.
    2. Tabuchi, T. & Thisse, J.-F., . "Asymetric equilibria in spatial competition," CORE Discussion Papers RP -1151, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Engel Eduardo M & Fischer Ronald & Galetovic Alexander, 2004. "Toll Competition Among Congested Roads," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-21, March.
    4. Small, Kenneth A. & Yan, Jia, 2001. "The Value of "Value Pricing" of Roads: Second-Best Pricing and Product Differentiation," University of California Transportation Center, Working Papers qt9569k1sz, University of California Transportation Center.
    5. Lee, In Ho & Mason, Robin, 2001. "Market structure in congestible markets," European Economic Review, Elsevier, vol. 45(4-6), pages 809-818, May.
    6. Edelson, Noel M, 1971. "Congestion Tolls Under Monopoly," American Economic Review, American Economic Association, vol. 61(5), pages 873-82, December.
    7. Parry, Ian, 2000. "Comparing the Efficiency of Alternative Policies for Reducing Traffic Congestion," Discussion Papers dp-00-28, Resources For the Future.
    8. Hackner, Jonas & Nyberg, Sten, 1996. "Vanity and Congestion: A Study of Reciprocal Externalities," Economica, London School of Economics and Political Science, vol. 63(249), pages 97-111, February.
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