Imperfect competition and congestion in the City

This paper presents a spatial model to study imperfect competition with congestion. The model is used to examine the price and wage setting of subcenters of a city. Residents live in a city while they shop and work in subcentres. Each subcenter o.ers one di.erentiated product and one di.erentiated workplace. Shopping and commuting from the city to the subcenter requires the use of transport infrastructure that can be congested. We show the existence of a Nash equilibrium in prices and wages and analyse the welfare impacts of congestion charging and infrastructure policies. This paper generalises the literature on imperfect competition with di.erentiated products as well as the literature on congestion pricing with imperfect competition.Road Pricing, Product Di.erentiation, Location Theory, New Economic Geography, Congestion.

From Local to Global Competition

This paper lays out and elaborates upon the properties of an extended Chamberlinian model with applications both in Industrial Organization and Economic Geography/ Urban Economics. The framework is used to explain the impact of some major changes over the last two centuries: reductions in transport costs, increased taste for variety, population growth, and use of technologies with greater returns to scale. To this end, we introduce a framework that has known models of oligopolistic competition with differentiated products as limit cases. These limit models include the circle, the logit, and the CES models. The integrative approach incorporates both localized and global competition, as well as price-sensitive individual.Product Differentiation, Economic Geography, Spatial Competition, Localization, Monopolistic Competition

Asymmetric Duopoly in Space - what policies work?

In this paper we study the problem of a city with access to two subcentres selling a differentiated product. The first subcentre has low free flow transport costs but is easily congested (near city centre, access by road). The second one has higher free flow transport costs but is less prone to congestion (ample public transport capacity, parking etc.). Both subcentres need to attract customers and employees by offering prices and wages that are sufficiently attractive to cover their fixed costs. In the absence of any government regulation, there will be an asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages offered by the two subcentres. This solution is typically characterised by excessive congestion for the nearby subcentre. We study the welfare effects of a number of stylised policies by setting up a general model and illustrating the model using competition between airports as an example. The first stylised policy is to extend the congested road to subcentre 1. This policy will not necessarily lead to less congestion as more customers will be attracted by the lower transport costs. The second policy option is to add congestion pricing (or parking pricing etc.) for the congested subcentre. This will decrease its profit margin and attract more customers. The third policy is acceptable for politicians: providing a direct subsidy to the remote subcentre, reducing its marginal costs. This policy will again ease the congestion problem for the nearby subcentre but will do this in a very costly way.duopoly, imperfect competition, congestion, general equilibrium, airport competition

The Economics of Truck Toll Lanes

This paper extends an earlier paper by the authors ("Maintenance and congestion pricing with competing roads" presented at ERSA 2005) by introducing two user groups: heavy and light vehicles (viz. trucks and cars). This extension is important since heavy vehicles generate higher congestion and (much) higher pavement damage externalities than do light vehicles. The model features a simple road network with two routes linking a common origin and destination. Pavement quality on each route depreciates with usage and due to natural weathering. Three administration regimes are analysed. The first two regimes are the second best and first best optima. In the second-best regime maintenance levels are chosen for the two routes, but no tolls are applied. In the first-best regime, both maintenance levels and tolls are set to support an optmal division of traffic between the two routes as well as an optimal quality of service. The final regime is a Duopoly. In this regime each route is owned and operated by a different firm that maximises its own profit by choosing a maintenance level and a toll. The analysis (which is still in progress) entails solution and comparison of the outcomes of the three administration regimes. Among other things, we are interested to see in which regimes routes are differentiated so that one route is mainly used by heavy vehicles and the other by light vehicles. Preliminary results suggest that (as in the case of homogeneous users) private ownership is distorted towards excessive tolls and low maintenance effort.

Research challenges in modelling urban road pricing: an overview

This article introduces the contributions of this special issue on modelling of urban road pricing and its implementation. The issue focuses on the design of urban road pricing schemes, and their spatial and temporal impacts, using quantitative transport (and land use) models. The policy implications of road pricing, including welfare and equity aspects, are studied for Paris, Brussels and Oslo using state of the art planning models. The issue is completed with a study of public acceptability and the upcoming road-pricing trial in Stockholm, and a review paper on the history of thought and future prospects of road pricing.urban transport planning models, road pricing, transport policy implementation, earmarking, efficiency, equity, acceptability

A cost-benefit analysis of tunnel investment and tolling alternatives in Antwerp

A proposal has been made to build a new tunnel under the Scheldt river near the centre of Antwerp in order to relieve traffic congestion on the ring road and in an existing tunnel. The new tunnel is expected to cost more than €1 billion, and tolls have been suggested to help finance construction and to manage demand. This paper conducts a preliminary cost-benefit analysis of a new tunnel and three alternative tolling schemes, and compares them with a do-nothing scenario and an option to toll the existing tunnel without building a new one. The analysis is performed using a model that was recently developed as part of the European-Union funded REVENUE project. The two tunnels are treated as imperfect substitutes, and a multi-year accounting framework is adopted that accounts for emissions, accidents and noise externalities, road damage, revenues accruing to the national and regional governments from existing transport user charges, and the salvage value of the new tunnel. With the base-case parameter values it is found that building the tunnel is worthwhile with all three tolling regimes and yields a higher benefit than not building the tunnel and tolling the old one. Nevertheless, the net benefit from building the tunnel differs appreciably between tolling regimes, and it is sensitive to the value assumed for the marginal cost of public funds.infrastructure investment, route choice, congestion, tolls

Tax Incidence in Differentiated Product Oligopoly

We analyze the incidence of ad valorem and unit excise taxes in an oligopolistic industry with differentiated products and price-setting (Bertrand) firms. Both taxes may be passed on to consumers by more than 100 percent, and an increase in the tax rate can increase short run firm profits (and hence the long run number of firms). We provide summary conditions for these effects to arise. The conditions depend on demand curvatures and are written in elasticity form. Surprisingly, the analysis largely corroborates Cournot results with homogeneous demand.Excise tax, unit tax, specific tax, ad valorem tax, imperfect competition, product differentiation, Bertrand, oligopoly, tax incidence, discrete choice models

The Efficiency of Indirect Taxes under Imperfect Competition

This paper considers the relative efficiency of ad valorem and unit taxes in imperfectly competitive markets. We provide a simple proof that ad valorem taxes are welfare-superior to unit taxes in the short run when production costs are identical across firms. The proof covers differentiated products and a wide range of market conduct. Cost asymmetries strengthen the case for ad valorem taxation under Cournot competition, but unit taxation may be welfare-superior under Bertrand competition with product differentiation. Ad valorem taxation is superior with free entry under Cournot competition, but not necessarily under price competition when consumers value variety.Excise tax, unit tax, specific tax, ad valorem tax, tax efficiency, product differentiation, imperfect competition