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Welfare Effects of Road Pricing and Traffic Information Under Alternative Ownership Regimes

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Document pages: 34 pages

Abstract: This paper models strategic interactions between a product supplier, a provider of information about product quality, and end users, in the context of road transportation. Using a game-theoretical analysis of suppliers pricing strategies, we assess the social welfare effects of traffic information under various road markets with different ownership regimes. The results show that in this context, the distortive welfare effect of monopolistic information pricing appears small to negligible. Collusion of the road operator and information provider yields higher social welfare than independent pricing by two firms. The intuition behind this result resembles that behind the welfare effects of double marginalization, but it is not exactly the same, as traffic information is not strictly complementary to road use.

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