Private Road Supply in Networks with Heterogeneous Users

We study different mixes of private and public supply of roads in a network with bottleneck congestion and heterogeneous users. In our setting, there are two parallel links for one origin and destination pair and two groups of travellers, where the group with higher value of time also has higher schedule delay value. Previously scholars have argued that as travellers become more heterogeneous, they benefit more from product differentiation, and thus private supply of roads becomes more efficient. However, we find that local monopoly power might also increase, i.e. the private supplier can increase the toll on his link without worrying that travellers will move to the other link. This can undermine the efficiency of private supply of roads. The problem is especially severe with flat tolls, where travellers in equilibrium tend to travel on separate roads. With queue-eliminating tolls, however, both types tend to travel on both roads in equilibrium, and the competition between road providers remains relatively intense.