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Should I stay or should I go? Congestion pricing and equilibrium selection in a transportation network

Enrica Carbone (), Vinayak V. Dixit () and Elisabet Rutstrom
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Enrica Carbone: Università della Campania “Luigi Vanvitelli”
Vinayak V. Dixit: University of New South Wales

Theory and Decision, 2022, vol. 93, issue 3, No 6, 535-562

Abstract: Abstract When imposing traffic congestion pricing around downtown commercial centers, there is a concern that commercial activities will have to consider relocating due to reduced demand, at a cost to merchants. Concerns like these were important in the debates before the introductions of congestion charges in both London and Stockholm and influenced the final policy design choices. This study introduces a sequential experimental game to study reactions to congestion pricing in the commercial sector. In the game, merchants first make location choices. Consumers, who drive to do their shopping, subsequently choose where to shop. Initial responses to the introduction of congestion pricing and equilibrium selection adjustments over time are observed. These observations are compared to responses and adjustments in a condition where congestion pricing is reduced from an initially high level. Payoffs are non-linear and non-transparent, making it less than obvious that the efficient equilibrium will be selected, and introducing possibilities that participants need to discover their preferences and anchor on past experiences. We find that initial responses reflect standard inverse price–demand relations, and that adjustments over time rely on signaling by consumers leading to the efficient equilibrium. There is also evidence that priming from initial experiences influence play somewhat. We confirm that commercial activities relocate following the introduction of congestion pricing and that the adjustment process is costly to merchants.

Keywords: Noncooperative games; Micro-based behavioral economics; Transportation: demand; supply and congestion; Government pricing and policy (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11238-021-09852-x

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