TY  - JOUR
AU  - Engel,Eduardo
AU  - Fischer,Ronald
AU  - Galetovic,Alexander
TI  - Toll Competition Among Congested Roads
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 239
PY  - 1999
Y2  - May 1999
UR  - http://www.nber.org/papers/t0239
L1  - http://www.nber.org/papers/t0239.pdf
N1  - Author contact info:
Eduardo Engel
Yale University
Department of Economics
P.O. Box 208268
New Haven, CT  06520-8268
Tel: 203/432-5595
Fax: 203/432-5779
E-Mail: eduardo.engel@yale.edu

Ronald Fischer
Centro de Economia Aplicada (CEA)
Departamento de Ingenieria Industrial
Universidad de Chile
Republica 701 Santiago CHILE
E-Mail: rfischer@dii.uchile.cl
AB  - 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.
ER  -