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Private Road Supply in Networks with Heterogeneous Users

Author

Listed:
  • Xinying Fu

    () (VU Amsterdam, The Netherlands)

  • Vincent A.C. van den Berg

    () (VU Amsterdam, The Netherlands)

  • Erik T. Verhoef

    () (VU Amsterdam, The Netherlands)

Abstract

We study different mixes of private and public supply of roads in a network with bottleneck congestion and heterogeneous users. There are two parallel links for one origin and destination pair and two groups of travellers, where the group with a higher value of time also has higher schedule delay value. Previous scholars argued that as users become more heterogeneous, they benefit more from product differentiation, making private supply of roads more efficient. However, we find that local monopoly power might also increase. This may occur if one group prefers one road over the other as the two offer different combinations of toll and travel delay. The private supplier can thus increase the toll on its link without worrying that the targeted travellers will move to the other link. This can undermine the efficiency of private supply of roads. The problem is especially severe with flat tolls. With queue-eliminating tolls, both types tend to travel on both roads, and competition remains relatively intense. Flat tolling is always worse for users than time-variant tolling as it has the higher generalized prices, and it also leads to a lower welfare.

Suggested Citation

  • Xinying Fu & Vincent A.C. van den Berg & Erik T. Verhoef, 2017. "Private Road Supply in Networks with Heterogeneous Users," Tinbergen Institute Discussion Papers 17-025/VIII, Tinbergen Institute, revised 12 Dec 2017.
  • Handle: RePEc:tin:wpaper:20170025
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    References listed on IDEAS

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    1. AndrÊ de Palma & Robin Lindsey, 2000. "Private toll roads: Competition under various ownership regimes," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 34(1), pages 13-35.
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    More about this item

    Keywords

    Congestion Pricing; Bottleneck Model; Heterogeneity; Private Supply;

    JEL classification:

    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • 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

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