Monday, January 4, 2010
Optimal Toll Pricing?
Tolls on the New York Thruways are 5% higher today, the second increase over the last year. According to Thruway Authority officials, the increase was necessary because of a decline in traffic. The logic here might sound a little goofy on initial read: "we raised price last year and traffic went down, so let's raise price again." But, what we don't know is what the effect has been on revenue. If demand for use of the tollway is fairly inelastic (I would guess that it probably is), raising price and decreasing quantity would lead to higher revenue.