Toll Competition Among Congested Roads / Eduardo Engel, Ronald Fischer, Alexander Galetovic.

Format:

Book

Author/Creator:

Engel, Eduardo.

Contributor:

National Bureau of Economic Research.

Fischer, Ronald.

Galetovic, Alexander.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0239.

NBER technical working paper series no. t0239

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Summary:

A growing number of roads are currently financed by the private sector via Build-Operate-and -Transfer (BOT) schemes. When the franchised road has no close substitute, the government must regulate tolls. Yet when there are many ways of getting from one point to another, regulation may be avoided by allowing competition between several franchise owners. This paper studies toll competition among private roads with congestion. The paper derives two main results. First, we find sufficient conditions for the existence of an equilibrium in pure strategies with strictly positive tolls. Equilibrium congestion is less than optimal, which runs counter to what is expected form price competition. While a lower toll reduces the out-of-pocket cost paid by a user, it increases the congestion cost thereby reducing the drivers' willingness to pay for using the road. Franchise holders partially internalize congestion costs when setting tolls, which softens price competition. Second, when demand and the number of roads increase at the same rate, tolls converge to the socially optimal level -- that is, in the limit equilibrium tolls are just enough to make each driver internalize the congestion externality.

Notes:

Print version record

May 1999.