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

Author

Listed:
  • 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.

Suggested Citation

  • Lei Zhang & David Levinson & Shanjiang Zhu, 2007. "Agent-Based Model of Price Competition and Product Differentiation on Congested Networks," Working Papers 200809, University of Minnesota: Nexus Research Group.
  • Handle: RePEc:nex:wpaper:agentpricecompetition
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    File URL: http://hdl.handle.net/11299/179969
    File Function: First version, 2007
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Shepherd, Simon & Balijepalli, Chandra, 2015. "A game of two cities: A toll setting game with experimental results," Transport Policy, Elsevier, vol. 38(C), pages 95-109.
    2. 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.

    More about this item

    Keywords

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

    JEL classification:

    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • D10 - Microeconomics - - Household Behavior - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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