University of Calgary

Highway Subfranchising and Tolling Competition

by Walls, W. D. and Yuan, Lasheng

Around the world a growing number of toll roads are currently in operation, under construction or planned. Toll roads organized as for-profit ventures compete for traffic with alternative roadways which may include toll-free roads, other toll roads, railroads and even waterways. Within a transportation network, a route connecting a single origin to a single destination can consist of multiple toll roads organized as separate decision-making entities; parallel route competition can occur between multiple end-to-end or subfranchised roadways. In this paper, we set out the analytics of competition and solve for the market equilibria under alternative organizational structures that vary with the number of serially-connected separate companies that form each of the competing routes. We find in the context of the simple network structure considered that toll road operators have an incentive to subfranchise the tolling management to several competing independent firms because subfranchising lessens tolling competition and concomitantly increases overall tolling profits.

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