Private toll roads: Competition under various ownership regimes

Abstract.

Interest is growing in private toll roads as an alternative to public free-access road infrastructure. Private toll roads have gained favour for various reasons, including a dearth of public funds for road construction and maintenance, increasing traffic congestion, and growing acceptance of the user-pay principle in general, and road pricing in particular. This paper focuses on allocative efficiency of private toll roads. The model features one origin and one destination linked by two parallel routes that can differ in capacity and free-flow travel time. Congestion takes the form of queueing. Prospective travellers decide whether to drive, and if so on which route and at what time. Three private ownership regimes are considered: (1) a private road on one route and free access on the other, (2) a private roads duopoly, and (3) a mixed duopoly with a private road competing with a public toll road. Private toll roads are generally found to enhance allocative efficiency (measured by social surplus) relative to free access. The efficiency gain is greater when both routes are tolled, tolls are varied over time to eliminate queueing, and when no private road has a dominant fraction of total capacity. Paradoxically, mixed duopoly can be less efficient than a private duopoly. Price leadership by a public toll road avoids this possibility, although leadership typically yields little additional efficiency gain.