Is the Travel Time of Private Roads Too Short, Too Long, or Just Right?

Transportation Research Part B, Forthcoming

Posted: 14 Apr 2012

See all articles by Vincent A.C. van den Berg

Vincent A.C. van den Berg

VU University Amsterdam; Tinbergen Institute

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics; Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Date Written: April 13, 2012

Abstract

We consider price and service-quality setting in oligopolistic markets for congestible services, applied to the case of private roads. Previous studies show that parallel competitors set a volume/capacity ratio (and thereby a travel time or service quality) that is socially optimal if they take the actions of the others as given. We find that this result does not hold when capacity and toll setting are separate stages — as then firms aim to limit toll competition by setting lower capacities, and thus higher travel times — or when firms set capacities sequentially, as then firms aim to limit the capacities of later entrants by setting higher capacities. In our Stackelberg competition, the last firm to act has no capacity decisions to influence. Hence, it is only concerned with the toll-competition substage, and sets a travel time that is longer than socially optimal. The first firm cares mostly about the competitors’ capacities that it can influence: it sets a travel time that is shorter than socially optimal. The average travel time will be too short from a societal point of view.

Keywords: Private Road Supply, Oligopoly, Stackelberg Competition, Service Quality, Optimal Travel Time

JEL Classification: D43, D62, L13, R41, R42

Suggested Citation

van den Berg, Vincent A.C. and Verhoef, Erik T., Is the Travel Time of Private Roads Too Short, Too Long, or Just Right? (April 13, 2012). Transportation Research Part B, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2039495

Vincent A.C. van den Berg (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

HOME PAGE: http://www.feweb.vu.nl/nl/afdelingen-en-instituten/spatial-economics/staff/v-berg/index.asp

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Erik T. Verhoef

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 020 4446094 (Phone)
+31 020 4446004 (Fax)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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