Now please read below the second part of this article: "Clifford Winston of the Brookings Institution and John Calfee of
Posted: Wed Apr 27, 2022 11:53 am
Now please read below the second part of this article:
"Clifford Winston of the Brookings Institution and John
Calfee of the American Enterprise Institute have considered the
toll road’s dilemma…Last year, the economists conducted an
elaborate market test with 1.170 people across the country who were
each presented with a series of options in which they were, in
effect, asked to make a personal tradeoff between less commuting
time and higher tolls. In the end, they concluded that the people
who placed the highest value on reducing their commuting time
already had done so by finding public transportation, living closer
to their work, or selecting jobs that allowed them to commute at
off-peak hours. Conversely, those who commuted significant
distances had a higher tolerance for traffic congestion and were
willing to pay only 20 percent of their hourly pay to save an hour
of their time. Overall, the Winston/Calfee findings help explain
why the Greenway’s original toll and volume projections were too
high: By their reckoning, only commuters who earned at least
$30 an hour (about $60,000 a year) would be willing to pay $2 to
save 20 minutes."
Please answer the following question:
d.
Suppose, indeed, that the demand for using the private road comes
from two types of consumers: those for whom time is very precious
and are willing to pay a lot for using the (private) road and
saving some time, and those who do not mind to spend a little bit
more time in the car and, hence, their demand for using the
(private) road is very elastic. Can you suggest a pricing
strategy that will enable the firm to “identify” the different
drivers and charge them different prices, so that profits will be
higher?
"Clifford Winston of the Brookings Institution and John
Calfee of the American Enterprise Institute have considered the
toll road’s dilemma…Last year, the economists conducted an
elaborate market test with 1.170 people across the country who were
each presented with a series of options in which they were, in
effect, asked to make a personal tradeoff between less commuting
time and higher tolls. In the end, they concluded that the people
who placed the highest value on reducing their commuting time
already had done so by finding public transportation, living closer
to their work, or selecting jobs that allowed them to commute at
off-peak hours. Conversely, those who commuted significant
distances had a higher tolerance for traffic congestion and were
willing to pay only 20 percent of their hourly pay to save an hour
of their time. Overall, the Winston/Calfee findings help explain
why the Greenway’s original toll and volume projections were too
high: By their reckoning, only commuters who earned at least
$30 an hour (about $60,000 a year) would be willing to pay $2 to
save 20 minutes."
Please answer the following question:
d.
Suppose, indeed, that the demand for using the private road comes
from two types of consumers: those for whom time is very precious
and are willing to pay a lot for using the (private) road and
saving some time, and those who do not mind to spend a little bit
more time in the car and, hence, their demand for using the
(private) road is very elastic. Can you suggest a pricing
strategy that will enable the firm to “identify” the different
drivers and charge them different prices, so that profits will be
higher?