Competition between highway operators: can we expect toll differentiation?
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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