Toll Competition and Dynamic Toll-Setting Strategies

Abstract

ABSTRACT Private toll operators generally seek to maximize their profit while accounting for the re-routing and demand response of the road users and, in the case of competitive toll operation, the response of other toll operators. Traditionally, the literature assumes that toll operators act under perfect information or set up a game-theoretic approach to find the competitive equilibrium. This article takes a different approach. A system-dynamics approach is used to model both the users' route choice and demand response to changes in generalized cost and to model the toll operators' decision rules or toll-update strategies. Simple examples are used to demonstrate that the approach can lead to the traditional equilibrium solution under the assumption of perfect knowledge, but that other solutions may occur when operators use estimates of elasticities based on observed data. The solutions are shown to depend upon the frequency of the decision or change in toll level, and errors are related to the disequilibrium which is present as users respond to changes in toll levels. Finally, alternative toll-setting strategies are investigated whereby one operator may act aggressively to increase its share of the market while maximizing profit. This tactic is compared to the traditional Nash and Stackelberg solutions.