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Private Road Supply in Networks with Heterogeneous Users

Listed author(s):
  • Xinying Fu

    ()

    (VU Amsterdam, The Netherlands)

  • Vincent A.C. van den Berg

    ()

    (VU Amsterdam, The Netherlands)

  • Erik T. Verhoef

    ()

    (VU Amsterdam, The Netherlands)

We study different mixes of private and public supply of roads in a network with bottleneck congestion and heterogeneous users. In our setting, there are two parallel links for one origin and destination pair and two groups of travellers, where the group with higher value of time also has higher schedule delay value. Previously scholars have argued that as travellers become more heterogeneous, they benefit more from product differentiation, and thus private supply of roads becomes more efficient. However, we find that local monopoly power might also increase, i.e. the private supplier can increase the toll on his link without worrying that 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, where travellers in equilibrium tend to travel on separate roads. With queue-eliminating tolls, however, both types tend to travel on both roads in equilibrium, and the competition between road providers remains relatively intense.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 17-025/VIII.

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Date of creation: 20 Feb 2017
Handle: RePEc:tin:wpaper:20170025
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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.
  2. Lindsey, Robin & de Palma, André, 2014. "Cost recovery from congestion tolls with long-run uncertainty," Economics of Transportation, Elsevier, vol. 3(2), pages 119-132.
  3. d'Ouville, Edmond L. & McDonald, John F., 1990. "Effects of demand uncertainty on optimal capacity and congestion tolls for urban highways," Journal of Urban Economics, Elsevier, vol. 28(1), pages 63-70, July.
  4. Wu, Di & Yin, Yafeng & Yang, Hai, 2011. "The independence of volume-capacity ratio of private toll roads in general networks," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 96-101, January.
  5. Wang, Judith Y.T. & Lindsey, Robin & Yang, Hai, 2011. "Nonlinear pricing on private roads with congestion and toll collection costs," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 9-40, January.
  6. Verhoef, Erik T., 2007. "Second-best road pricing through highway franchising," Journal of Urban Economics, Elsevier, vol. 62(2), pages 337-361, September.
  7. Arnott, Richard & de Palma, Andre & Lindsey, Robin, 1996. "Information and Usage of Free-Access Congestible Facilities with Stochastic Capacity and Demand," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 181-203, February.
  8. Erik T. Verhoef, 2008. "Private Roads: Auctions and Competition in Networks," Journal of Transport Economics and Policy, University of Bath, vol. 42(3), pages 463-493, September.
  9. Kraus, Marvin, 1982. "Highway pricing and capacity choice under uncertain demand," Journal of Urban Economics, Elsevier, vol. 12(1), pages 122-128, July.
  10. F. H. Knight, 1924. "Some Fallacies in the Interpretation of Social Cost," The Quarterly Journal of Economics, Oxford University Press, vol. 38(4), pages 582-606.
  11. De Vany, Arthur & Saving, Thomas R, 1980. "Competition and Highway Pricing for Stochastic Traffic," The Journal of Business, University of Chicago Press, vol. 53(1), pages 45-60, January.
  12. De Vany, Arthur S & Saving, Thomas R, 1977. "Product Quality, Uncertainty, and Regulation: The Trucking Industry," American Economic Review, American Economic Association, vol. 67(4), pages 583-594, September.
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