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Private Road Supply in Networks with Heterogeneous Users

Xinying Fu (), Vincent A.C. van den Berg () and Erik Verhoef ()
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Xinying Fu: VU Amsterdam, The Netherlands
Vincent A.C. van den Berg: VU Amsterdam, The Netherlands

No 17-025/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

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.

Keywords: Congestion Pricing; Bottleneck Model; Heterogeneity; Private Supply (search for similar items in EconPapers)
JEL-codes: R41 R42 R48 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-tre and nep-ure
Date: 2017-02-20, Revised 2017-12-12
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