Monday, 2 July 2012

Toll prices cut on San Diego toll road

I’ve written extensively about the “renationalisation” of a private toll road in San Diego, the South Bay Expressway as follows, which gives you background about this poorly performing investment:

The new owner, the San Diego Association of Governments decided to cut tolls in order to spread demand between the toll road and the existing parallel untolled I-805.

CBS8 reports that tolls have dropped by between 21% and 41% from a range of US$0.85 to US$3.50 to US$0.50 to US$2.75 per trip for account holders with tags. Cash or credit card payment at toll booths will drop US$0.50 (a new range of US$2-US$3.50 compared with US$2.50 to US$4).

What will be of interest to some in the industry will be the extent to which the lowered tolls induce a shift in demand patterns, and whether this will more than offset the reduced yield per trip.  There being two relevant goals.

The primary goal is likely to still be to maximise revenue, with the hope that lower prices are more than offset by increased demand.   

Yet the secondary goal will be to enable enough shift in demand from the congested parallel highways to mean overall time savings for traffic on those highways are valued sufficiently highly enough to offset any reduction in toll revenue.

I doubt that the revenue maximising toll is the utility maximising toll (or indeed that cutting rates will be more than offset by increased demand, as the elasticities of demand on single roads are not that great).

SANDAG will be hoping for both of course, because even though there can be a net benefit of reduced congestion which, in overall economic good terms, could be much higher in theory than the loss of revenue, it will be embarrassing for SANDAG to have turned a toll road that was not a financial success into being even less financially successful.

More details on tolls on the road's recently updated website here.

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