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Competition between Two Cities using Cordon Tolls: An Exploration of Response Surfaces and Possibilities for Collusion

Koh, ATM, Shepherd, S and Watling, D (2012) Competition between Two Cities using Cordon Tolls: An Exploration of Response Surfaces and Possibilities for Collusion. Transportmetrica. ISSN 1812-8602

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Abstract

Extending the literature on competition in the presence of cordon tolls, this article explores the implications of competition between two cities. The city authorities are assumed to maximise the welfare of their own residents whilst taking advantage of tax export mechanisms by charging traffic from the competing authority. The problem is posed as an Equilibrium Problem with Equilibrium Constraints (EPEC) which is a special form of a Nash game with a hierarchical structure. Employing a grid search to explore the response surfaces and to determine the Nash Equilibrium toll levels, we demonstrate the possibility that there may exist multiple local Nash solutions and that competition may lead to a sub-optimal outcome for one or both authorities depending on whether there exists a stronger player. We then consider the impact of elasticity of demand and other parameter assumptions on the potential number of Nash solutions. Finally incentives for collusion are studied.

Item Type: Article
Copyright, Publisher and Additional Information: © 2012, Taylor & Francis. This is an author produced version of a paper published in Transportmetrica. Uploaded in accordance with the publisher's self-archiving policy.
Keywords: networks, pricing, competition, Nash Equilibrium, tolls
Institution: The University of Leeds
Academic Units: The University of Leeds > Faculty of Environment (Leeds) > Institute for Transport Studies (Leeds)
Depositing User: Symplectic Publications
Date Deposited: 14 May 2012 12:11
Last Modified: 07 Jun 2014 02:53
Published Version: http://dx.doi.org/10.1080/18128602.2012.673033
Status: Published
Publisher: Taylor & Francis
Identification Number: 10.1080/18128602.2012.673033
URI: http://eprints.whiterose.ac.uk/id/eprint/43896

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