EFFICIENCY LOSS OF PRIVATE TOLL ROAD COMPETITION

We study the effects of oligopolistic equilibria on a network of parallel roads where each road can be tolled by a different private firm. A loss of social welfare is caused by the selfish behavior that each private firm simply seeks to maximize its own profit by charging users for access to the road. Using theoretical models, we bound this inefficiency by considering general demand function and general cost functions with a few widely used assumptions. We find that the bound depends mainly on the property of the demand function. By further assuming and examining the concavity or convexity of the demand function, we establish improved bounds. As a specific case, we also provide tight bounds for symmetric travel cost functions. Naturally, our results show that increasing competition among oligopolists can improve efficiency and the market is fully efficient when oligopoly reduces to perfect competition