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

Lei Zhang, David Levinson and Shanjiang Zhu
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Shanjiang Zhu: Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota

No 200809, Working Papers from University of Minnesota: Nexus Research Group

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.

Keywords: Network dynamics; road pricing; autonomous links; privatization; price competition; product differentiation; agent-based transportation model (search for similar items in EconPapers)
JEL-codes: C72 D10 D21 D23 D24 D43 D83 D85 H21 H23 H44 L92 O33 R40 R42 R48 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cmp, nep-com, nep-cse, nep-gth, nep-mic, nep-net, nep-pbe and nep-ure
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Citations: View citations in EconPapers (3)

Published in Journal of Transport Economics and Policy Sept. 2008 42(3) Pages 435-461.
Published in Journal of Transport Economics and Policy Sept. 2008 42(3) pp. 435-461.

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Persistent link: https://EconPapers.repec.org/RePEc:nex:wpaper:agentpricecompetition

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