Residents live in a city while they shop and work in subcentres. Each subcentre offers one differentiated product and one differentiated workplace. Shopping and commuting from the city to the subcentre requires the use of transport infrastructure that can be congested.

The researchers show the existence of a Nash equilibrium in prices and wages and analyse the welfare impacts of congestion charging and infrastructure policies. This paper generalised the literature on imperfect competition with differentiated products as well as the literature on congestion pricing with imperfect competition.

The total number of firms depends on the profit margin of the firms in the Nash equilibrium. When there is no congestion, in the equilibrium there is always one subcentre too many. The equilibrium and optimum numbers of subcentres are always (increasing) linear functions of the same parameters. More heterogeneity (on the product or labour market) leads to a higher optimal number of subcentres.

Higher fixed production costs, lead to a lower optimum number of subcentres. When the road size cannot be optimized, the public infrastructure cost also points to a lower optimal number of subcentres.

University of Cergy-Pontoise - Department of Economics
André de Palma

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01/01/2005

André de Palma and Stef Proost

research

Urban Policy > Transport and infrastructure > Roads and road transport

Traffic management