CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Saturday, December 03, 2011
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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76 Comments:
I would think those who support free markets would prefer toll roads over tax-funded roads and even more prefer tolls that are dynamically priced.
About 80% of the public is opposed to increasing the gas tax so that leads to building roads that are tolled which I believe is a better way of evaluating true "need" for a road than the typical DOT process.
what people are willing to pay to use a road is the ultimate in open markets, right?
The phone app itself is nothing earth-shaking..GOOGLE and makers like Garmin offer alternative routing including traffic/congestion/travel time conditions.
the best app will not only show the alternative routes but the "cost" not only in dollars but time and fuel.
The original interstate highway system was initially planned to be tolled but a fatal mistake was made when Eisenhower was convinced that the rural interstates could not be tolled and still pay for themselves.
technology now exists that negates the need for toll booths.
everything is electronic. you get a transponder (or your license plate image is captured).
with the continuing opposition to increasing the gas tax - we're going to see not only more and more toll roads but we're going to see dynamic pricing on some of those roads.
I would think most free-market affectionatoes (sp?) would rather pay tolls than higher taxes, eh?
"I would think most free-market affectionatoes (sp?) would rather pay tolls than higher taxes, eh?"
If tolling were for the express purpose of paying for a particular transportation use, such as the new 520 bridge, then yes.
BUT, there is social engineering aspects included in Washington's new tolling iniative. Here is the key section that will be used for mischief:
Washington House Bill 1773, passed in 2008, authorized variable tolling. The highest tolls come at peak travel times, and can be avoided by taking public transportation.
Page 2 of the bill synopsis tells us "When to Use Tolling" and is summarized as:
"The social, environmental, and economic effects of the tolling should be considered, and the tolling should be directed at making progress toward the state's
greenhouse gas reduction goals."
So, get people out of cars by higher tolls(peak travel), and greenhouse gas reduction goals for the state will be helped.
well.. the bridge and it's maintenance and operations still need to be paid for.
all things being equal (and I acknowledge they may not be)...
would you rather pay for the bridge with tolls or taxes?
fair question?
also...
is it better to have a smaller/cheaper bridge but manage traffic with dynamic tolls or a bigger bridge that can easily handle rush hour traffic but has much higher tolls all the time?
"would you rather pay for the bridge with tolls or taxes?"
Tolls are fine but, will my taxes go down or will tolling stop when the bridge builiding is paid for? NO.
The politicians are pushing a public transportation agenda -- Ride the Bus. Skip the Toll! There will be lanes for bicycles, pedestrians and for buses.!!
Will this reduce emissions? No, people will drive around Lake Washington to avoid the tolls, and congest streets not designed as highways.
Ride the Bus. Skip the Toll.
friendly amendment....
roads/bridges are "never" paid for.
they have to be maintained and operated...
I'm not sure how one would compute the taxes you currently pay verses new bridges/roads that are tolled ....
... but in most states, the gas tax has not kept up with inflation and there is significant opposition to increasing it...so that basically leaves tolls as the other option if you need new infrastructure and the budget has no money for it.
in terms of social agenda... to me that's sort of a side issue if we're talking about a true need for a new bridge....and how to pay for it....
I do acknowledge that on SOME toll roads - some of the "profit" is targeted to more transit but I'd also point out that some tolls roads... (like the ill-fated Pocahontas Parkway toll road in Va) could not even pay back it's bonds from the tolls...
so it cuts both ways....
Some States - Florida and Maryland are forming statewide toll authorities where they collect tolls into one fund and then from that fund..build additional toll roads.
here's another:
After Tolls Rise, Less Traffic and More Train Riders Into Manhattan
http://www.nytimes.com/2011/12/03/nyregion/after-toll-increases-less-traffic-and-more-train-riders.html
here's a disaster:
http://blogs.ajc.com/political-insider-jim-galloway/2011/11/22/feds-deny-request-to-waive-two-person-car-pool-rule/
"I would think those who support free markets would prefer toll roads over tax-funded roads and even more prefer tolls that are dynamically priced"...
Paying the state an exorbitant amount of money for tolls is NOT free market but just an extension of the state's extortion scheme...
..." just an extension of the state's extortion scheme... "
privately owned? voluntary transaction?
"privately owned? voluntary transaction?"...
Well larry g I wonder if the state sold the overly expensive 520 bridge on an open bid basis to a private entity if both the tolls would be cheaper and the maintenance would be better?
yeah... but would you need govt to make sure the private company did not rip off people?
careful now.. this is a libertarian question.
;-)
"yeah... but would you need govt to make sure the private company did not rip off people"...
No, you vote with your wallet larry g...
good answer!
how about ED to build it?
yes, no.... only willing buyer/willing seller for the land/right of way?
"I would think those who support free markets would prefer toll roads over tax-funded roads and even more prefer tolls that are dynamically priced."
Toll roads and bridges yes, dynamic pricing no.
Dynamic pricing can have no other justification than to affect social engineering, as Buddy pointed out, or to enrich the toll authority, neither of which is a legitimate role for government.
The operator of a private bridge can charge whatever they wish, at any time they wish, and users can decide for themselves whether they want the service or not, based on their own opportunity costs.
A person driving their car across a bridge gets the same utility, and incurs the same cost to the bridge owner, every time. This has no bearing on time of day or traffic volume.
"how about ED to build it?
yes, no.... only willing buyer/willing seller for the land/right of way?"
No.
"A person driving their car across a bridge gets the same utility, and incurs the same cost to the bridge owner, every time. This has no bearing on time of day or traffic volume."
doesn't it depend on how much volume there is verses how much capacity?
In order to move rush hour traffic you'd have to have extra lanes...which will cost more.
dynamic pricing lets the driver decide what time just like it works with airline tickets and cell phone minutes.
Both the airlines and cell phone companies would have to have more planes and more cell towers to serve peak periods so they "shape" demand by dynamic pricing.
isn't dynamic pricing a valid concept for supply/demand?
"how about ED to build it?
yes, no.... only willing buyer/willing seller for the land/right of way?"...
Just say no to eminent domain larry g...
Instead of a buyer/seller combo maybe the lessor/lessee could also have been explored...
How confident are you that were the 520 bridge is now is the only place it could've been placed?
" How confident are you that were the 520 bridge is now is the only place it could've been placed?"
no clue. my question is more generic ..may or may not conflict with specific bridges but....
we have existing examples of toll bridges both private and public in many places...
a private company that cannot use ED and would have to pay whatever the buyer demanded or find a cheaper place to cross... etc.. so ED gives the state an subsidized advantage over private and would seem to have a material impact on tolls.
right?
I'm not arguing in favor of or opposition to ED for private... but pointing out that when it comes to things like roads... the state has the advantage.... but unfortunately the States don't often use investor-grade toll/traffic projection analysis when figuring construction and operational costs.
"so ED gives the state an subsidized advantage over private and would seem to have a material impact on tolls.
right?"...
Yes, the state gets a 'taxpayer financed' subsidy power over the individual or small company...
Still even with power of ED that isn't apparently enough for power for some state politicos...
So cost overruns can still be the name of the game if cronyism seeps in around the edges of a large project...
Having just moved back to WA state from New York, my tax burden was cut by so much that I get excited when I see $3.80 tolls for a trip across the lake. Real estate taxes in NY were 3 times as much as Washington; NY has an abusive income tax; and the road tolls in NY are higher. I feel like taxes are a 65% off sale.
And I really want dynamic pricing. I'm happy to pay $4 to cross the bridge if it cuts my commute time because other people don't want to pay it. I really hope they got the demand elasticity estimate right and we'll see a reduction in usage so that my usage experience improves.
"doesn't it depend on how much volume there is verses how much capacity?"
No. Each car crossing the bridge gets the same amount of use of the bridge. The unit of measure is a "car-crossing". Each car uses one car-crossing per trip. One hundred cars use 100 car-crossings, and pay 100 tolls, whether they cross one at a time or all at once.
"In order to move rush hour traffic you'd have to have extra lanes...which will cost more."
A bridge is designed to carry a certain peak traffic volume, and that capacity is avalable at all times, whether it's used or not.
"dynamic pricing lets the driver decide what time just like it works with airline tickets and cell phone minutes."
And this is fine for an airline or phone company, which can optimize the use of resources, but a bridge is a fixed resource, and has full capacity at all times, no matter what the volume of traffic. Drivers can decide for themselves whether the delay is acceptabe during peak hours. A private owner may wish to maximize profit at certain times, but this is not a role for government.
"Both the airlines and cell phone companies would have to have more planes and more cell towers to serve peak periods so they "shape" demand by dynamic pricing."
Yes, they can adjust the availability of resources, but a bridge is available at full capacitry at all times.
"isn't dynamic pricing a valid concept for supply/demand?"
For a private operator who wishes to maximize profit, yes. A government operator, no.
"a private company that cannot use ED and would have to pay whatever the buyer demanded or find a cheaper place to cross... etc.. so ED gives the state an subsidized advantage over private and would seem to have a material impact on tolls.
right?"
Here's the thing about ED:
If I take your property to build a bridge, you would call it theft.
If I and a group of friends take your property to build a bridge you would call it theft.
If I and a majority of people use the power of government to take your property to build a bridge, you would call it theft.
ED is ______________ fill in the blank.
A property owner may ask a high price for their property, but they get nothing unless thay actually sell it at a price a private bridge builder is eilling to pay. Unless a property is determined to hold out at all costs, a mutually agreeable price may not be as difficult to reach as you might think.
One of the problems with ED is that once the proposed route is known, properties subject to ED lose value, as there is no longer any alternate use, and the owner is stuck with what government entity is willing to pay.
Stephen: "And I really want dynamic pricing. I'm happy to pay $4 to cross the bridge if it cuts my commute time because other people don't want to pay it. I really hope they got the demand elasticity estimate right and we'll see a reduction in usage so that my usage experience improves."
Others may feel as you do, and bid up the price of the toll to a much higher price before your commute experience improves as much as you would like.
if a bridge cannot handle all the traffic that wants to use it then what?
isn't that the same problem as the airlines not able to provide enough planes to satisfy their traffic at "rush hour" and so they essentially price it according to demand?
"if a bridge cannot handle all the traffic that wants to use it then what?"
Then traffic will slow down, and some people will take alternate routes.
Raising the toll price merely reduces demand until average speed increases at maximum flow. This diverts additional cars to alternate routes, thereby increasing congestion there. There is no reduction in total traffic, only changes to its routing, and higher cost for all commuters, either in money or time.
Commuters can find their own preferred routes without the heavy hand of government interference in the form of offering a faster commute to those willing to pay more. If you are in favor of this form of dynamic pricing, you cannot be against dynamic pricing in the private sector, sometimes called price gouging.
"isn't that the same problem as the airlines not able to provide enough planes to satisfy their traffic at "rush hour" and so they essentially price it according to demand?"
No. Bridges have a maximum capacity in number of cars per time period. This capacity is the same at all times, and cannot be changed.
Airlines can, and do, move planes, personnel and other resources to times and routes where they are most demanded, but these may not be the most efficient for the airlines, so they use pricing to change demand in order to optimize the use of their resources.
when you first build the bridge - you have a good idea of future traffic projections but you often cannot build a big enough bridge because of funding constraints.
you say:
" Bridges have a maximum capacity in number of cars per time period. This capacity is the same at all times, and cannot be changed"
so do airlines..
you say:
" not be the most efficient for the airlines, so they use pricing to change demand in order to optimize the use of their resources. "
and what happens to the "traffic" when they do that?
same deal with cell phones.
a fixed number of towers that cannot handle peak loads so they charge more at peak hour.
the issue is that you CAN build enough capacity to handle peak traffic but it's way more expensive and it leaves many hours when there is unused capacity.
the airlines could buy enough planes to not have to use dynamic pricing but if they did - they'd have to raise the rates on everyone to pay for the extra planes - available at peak hours but sitting unused at other times.
dynamic pricing balances the supply/demand equation.
It's support by conservative organizations like Heritage and Cato....
the building of new roads by private entities that charge tolls to pay for the roads is a very libertarian idea...and private businesses should be able to load-balance demand with supply/demand pricing , right?
"dynamic pricing balances the supply/demand equation."
It's hard to understand how you managed to ignore my entire point about bridge capacity.
"so do airlines.."
You misread my comment.
"you say:
" not be the most efficient for the airlines, so they use pricing to change demand in order to optimize the use of their resources. "
"and what happens to the "traffic" when they do that?"
Demand may change for certain routes at certain times if prices are changed, but airlines can add capacity or reduce capacity on any particular route, while bridges cannot.
"the building of new roads by private entities that charge tolls to pay for the roads is a very libertarian idea...and private businesses should be able to load-balance demand with supply/demand pricing , right?"
Private operators are free to charge whatever they want, whenever they want.
They may seek to maximize profit by charging more when demand is high, or customers may be willing to pay more for a higher speed at maximum flow rate.
Other than that, as costs to the operator per car are the same at all times, there is no incentive to load balance, unless it creates more total traffic per day.
" but airlines can add capacity or reduce capacity on any particular route"
they do not have sufficient capacity across their network at rush hour - for the same reason the bridge is not built big enough to handle rush hour..or for that matter enough cell phone towers to handle their peak and that is that it would cost much, much more to do that, there would be unused capacity at all times not rush hour and everyone would end up paying more for what amounted to - unused capacity.
it appears to me that dynamic pricing of roads/bridges is not much different than dynamic pricing of other goods/services in an economy just not done until recently for roads.
"it appears to me that dynamic pricing of roads/bridges is not much different than dynamic pricing of other goods/services in an economy just not done until recently for roads."
As it appears you will not address my comments directly, let me just ask a couple of questions:
1. Do you believe that dynamic pricing of other goods such as gasoline, electric generators, bottled water, and batteries is a good thing when demand is higher? Does it more fairly distribute scarce resources?
2. What benefit to commuters do you see accruing from dynamic pricing of a bridge toll, if it causes some to pay more because they have no real choice of when they travel, and causes others to travel at a time that isn't the best time of day for them?
In other words, who benefits from dynamic pricing of a bridge toll?
"1. Do you believe that dynamic pricing of other goods such as gasoline, electric generators, bottled water, and batteries is a good thing when demand is higher? Does it more fairly distribute scarce resources?"
I believe it is a classic free market where supply/demand are balanced ...
"2. What benefit to commuters do you see accruing from dynamic pricing of a bridge toll, if it causes some to pay more because they have no real choice of when they travel, and causes others to travel at a time that isn't the best time of day for them?"
the benefit is the same exact benefit that airline passengers or cell phone users get..in that if someone has a time sensitive need they have an option and if they don't.. they can save money by deferring it until lower rates.
"In other words, who benefits from dynamic pricing of a bridge toll?"
taxpayers and toll payers who don't have to build a bridge twice as big to handle peak hour while sitting unused at non peak.
"I believe it is a classic free market where supply/demand are balanced ... "
Supply and demand will always tend toward balance in a free market, based on the price signal, but you didn't answer my questions.
Does it more fairly distribute the scarce goods I mentioned, and do you approve of it?
"taxpayers and toll payers who don't have to build a bridge twice as big to handle peak hour while sitting unused at non peak."
You have once again avoided answering my question. Do you not understand it?
Why would taxpayers be paying for a private toll bridge?
Bridges and roads always handle peak hour, just not at the speed some might prefer. The supply of bridge is fixed. Only the time required to cross changes, so you are pricing travel time, not bridge use per car.
Dynamic pricing favors rich over poor, you know, is that OK?
"I believe it is a classic free market where supply/demand are balanced ... "
Supply and demand will always tend toward balance in a free market, based on the price signal, but you didn't answer my questions.
Does it more fairly distribute the scarce goods I mentioned, and do you approve of it? "
no more or less than ANY market does. Why would you want to restrict one market on that basis and not others?
"taxpayers and toll payers who don't have to build a bridge twice as big to handle peak hour while sitting unused at non peak."
You have once again avoided answering my question. Do you not understand it?"
I understand it fine..you just don't like the answer.
"Why would taxpayers be paying for a private toll bridge?"
for the same reason they pay for private cell phones and airlines.
"Bridges and roads always handle peak hour, just not at the speed some might prefer. The supply of bridge is fixed. Only the time required to cross changes, so you are pricing travel time, not bridge use per car."
no they do not. you need to understand the difference between average capacity and peak hour capacity and the implications of it with respect to the size and scope of infrastructure.
"Dynamic pricing favors rich over poor, you know, is that OK?"
do you think the price of fuel at the service station favors rich over poor or the price of stocks/bonds favors rich over poor?
why do you make this argument ONLY with respect to dynamic pricing of one kind of infrastructure ?
I would think a libertarian like you that thinks there should be a market in virtually everything including kidneys would also think that about roads/bridges.
how are you making a distinction here?
me: "Why would taxpayers be paying for a private toll bridge?""
you: "for the same reason they pay for private cell phones and airlines."
um... taxpayers don't pay for private cell phones and airlines. For what reason are you imagining they would?
"no they do not. you need to understand the difference between average capacity and peak hour capacity and the implications of it with respect to the size and scope of infrastructure."
Implications? We're talking about a bridge, Larry. You are confused.
A lane for traffic, on a bridge or a highway, can handle some maximum number of cars per minute. This is the lane's *capacity*. It doesn't change. there may be different rates of traffic flow at different times, but the *capacity* doesn't change.
This *capacity* will be something like 60-80 cars per minute at 60mph, depending on how closely people are willing to follow behind the car ahead of them. In other words, 60-80 cars can travel a mile of bridge or highway in 1 minute at 60mph.
As more cars enter the lane, traffic will slow down, as each driver slows to maintain a comfortable, but smaller space in front of them.
At 30mph, 120-160 cars can travel 1 mile of bridge in 2 minutes. At 15mph, 240-320 cars can travel that mile in 4 minutes.
Each of these is the same flow rate, which is the maximum.
No matter haw many cars actually cross the bridge in a given time up the maximum flow rate, the *capacity* of each lane is 60-80 cars/min at all times, even whan there are NO cars on the bridge.
Dynamic pricing doesn't increase that maximum flow rate, only reduces the number of drivers willing to attempt crossing at the higher priced time of day, thus allowing a higher speed, but not a higher maximum flow rate.
So, by charging a higher price, you can affect the amount of traffic, and thus the speed, but not the capacity. You are selling higher speed commuting, not bridge capacity.
I don't know how else to explain it. If you don't understand this, there is no further hope of discussing it.
me: "Does it more fairly distribute the scarce goods I mentioned, and do you approve of it? "
you: "no more or less than ANY market does. Why would you want to restrict one market on that basis and not others?"
We are talking about dynamic pricing in general. The original subject involves a bridge, so I discussed a bridge.
I asked about some other goods people buy, and asked about dynamic pricing for those items when supply became limited for some reason. A natural disaster, such as a major storm is a good example.
So, do you believe a private station operator should dynamically price his smaller than usual supply of gasoline to ensure it goes to those who most need it, and make it available for a longer period of time by raising the price, or should he charge his regular price, sell out in 2 hours then close up and go home, as well as risking losing money on his next delivery as it may cost him more?
me: "Why would taxpayers be paying for a private toll bridge?""
you: "for the same reason they pay for private cell phones and airlines."
um... taxpayers don't pay for private cell phones and airlines. For what reason are you imagining they would?"
taxpayers can't also be customers of services?
"no they do not. you need to understand the difference between average capacity and peak hour capacity and the implications of it with respect to the size and scope of infrastructure."
Implications? We're talking about a bridge, Larry. You are confused."
really?
"A lane for traffic, on a bridge or a highway, can handle some maximum number of cars per minute. This is the lane's *capacity*. It doesn't change. there may be different rates of traffic flow at different times, but the *capacity* doesn't change."
that's right...and at rush hour you have a choice - a bigger bridge with enough capacity or backups.
"This *capacity* will be something like 60-80 cars per minute at 60mph, depending on how closely people are willing to follow behind the car ahead of them. In other words, 60-80 cars can travel a mile of bridge or highway in 1 minute at 60mph."
actually the most efficient throughput is about 40mph.
"As more cars enter the lane, traffic will slow down, as each driver slows to maintain a comfortable, but smaller space in front of them.
At 30mph, 120-160 cars can travel 1 mile of bridge in 2 minutes. At 15mph, 240-320 cars can travel that mile in 4 minutes.
Each of these is the same flow rate, which is the maximum."
okay....
"No matter haw many cars actually cross the bridge in a given time up the maximum flow rate, the *capacity* of each lane is 60-80 cars/min at all times, even whan there are NO cars on the bridge.
Dynamic pricing doesn't increase that maximum flow rate, only reduces the number of drivers willing to attempt crossing at the higher priced time of day, thus allowing a higher speed, but not a higher maximum flow rate."
it uses supply and demand to reduce congestion to match the capacity with the flow.
"So, by charging a higher price, you can affect the amount of traffic, and thus the speed, but not the capacity. You are selling higher speed commuting, not bridge capacity."
it goes back to how many lanes you want for the bridge ... the cost for those lanes and how many vehicles per hour it can handle. That's directly affected by how many lanes you have.
I don't know how else to explain it. If you don't understand this, there is no further hope of discussing it."
that's okay. it's clear you don't understand it or want to because how big the bridge is similar to how many planes is similar to how many cell towers and it don't have much of anything to do with taxpayers unless you'd want taxpayers to be buying planes or cell towers also.
All 3 work by supply and demand.
if a private entity operated the bridge - they'd charge tolls to pay for it and how much they'd charge would depend on how many lanes of bridge were built.
they'd not build more lanes just for rush hour than then would be empty outside of rush hour because if they did, they'd have to charge higher tolls.
so they build for something less for rush hour and they allocate it by price.
it works exactly like anything else that is dynamically priced
Libertarian groups like the Heritage and Cato folks support dynamic pricing for roads.
me: "Why would taxpayers be paying for a private toll bridge?""
you: "for the same reason they pay for private cell phones and airlines."
um... taxpayers don't pay for private cell phones and airlines. For what reason are you imagining they would?"
taxpayers can't also be customers of services?
"no they do not. you need to understand the difference between average capacity and peak hour capacity and the implications of it with respect to the size and scope of infrastructure."
Implications? We're talking about a bridge, Larry. You are confused."
really?
"A lane for traffic, on a bridge or a highway, can handle some maximum number of cars per minute. This is the lane's *capacity*. It doesn't change. there may be different rates of traffic flow at different times, but the *capacity* doesn't change."
that's right...and at rush hour you have a choice - a bigger bridge with enough capacity or backups.
"This *capacity* will be something like 60-80 cars per minute at 60mph, depending on how closely people are willing to follow behind the car ahead of them. In other words, 60-80 cars can travel a mile of bridge or highway in 1 minute at 60mph."
actually the most efficient throughput is about 40mph.
"As more cars enter the lane, traffic will slow down, as each driver slows to maintain a comfortable, but smaller space in front of them.
At 30mph, 120-160 cars can travel 1 mile of bridge in 2 minutes. At 15mph, 240-320 cars can travel that mile in 4 minutes.
Each of these is the same flow rate, which is the maximum."
okay....
"No matter haw many cars actually cross the bridge in a given time up the maximum flow rate, the *capacity* of each lane is 60-80 cars/min at all times, even whan there are NO cars on the bridge.
Dynamic pricing doesn't increase that maximum flow rate, only reduces the number of drivers willing to attempt crossing at the higher priced time of day, thus allowing a higher speed, but not a higher maximum flow rate."
it uses supply and demand to reduce congestion to match the capacity with the flow.
"So, by charging a higher price, you can affect the amount of traffic, and thus the speed, but not the capacity. You are selling higher speed commuting, not bridge capacity."
it goes back to how many lanes you want for the bridge ... the cost for those lanes and how many vehicles per hour it can handle. That's directly affected by how many lanes you have.
I don't know how else to explain it. If you don't understand this, there is no further hope of discussing it."
that's okay. it's clear you don't understand it or want to because how big the bridge is similar to how many planes is similar to how many cell towers and it don't have much of anything to do with taxpayers unless you'd want taxpayers to be buying planes or cell towers also.
All 3 work by supply and demand.
if a private entity operated the bridge - they'd charge tolls to pay for it and how much they'd charge would depend on how many lanes of bridge were built.
they'd not build more lanes just for rush hour than then would be empty outside of rush hour because if they did, they'd have to charge higher tolls.
so they build for something less for rush hour and they allocate it by price.
it works exactly like anything else that is dynamically priced
Libertarian groups like the Heritage and Cato folks support dynamic pricing for roads.
What about dynamic pricing for goods that are in short supply due to a natural disaster?
I was going to ask you when you made the statement about the market fairly allocating resources...
because it seemed out of character for what I know of your views...
so now we get the next question about whether the market should be interfered with for "cause".
so.. have I read you wrong on this?
you apparently believe that in some cases at least that there is justification for intervention in the markets....
"o now we get the next question about whether the market should be interfered with for "cause".
so.. have I read you wrong on this?"
Yes.
"you apparently believe that in some cases at least that there is justification for intervention in the markets...."
There's no intervention involved at all. A private merchant can charge whatever they wish for a product. Customers can choose to pay the asked price, or not.
It appears you approve of an operator charging more when demand is higher in the case of a toll bridge, so my question is whether you approve of a private gas station operator charging more when demand is higher after a natural disaster has delayed his normal delivery of gas from the distributor.
He can sell at his regular price and be out of gas in a short time, then close up and go home until more gas is available - or - he can raise his price, making his limited supply last longer, and ensuring that it goes to those who need it most.
Is this dynamic pricing OK with you?
" He can sell at his regular price and be out of gas in a short time, then close up and go home until more gas is available - or - he can raise his price, making his limited supply last longer, and ensuring that it goes to those who need it most.
Is this dynamic pricing OK with you? "
isn't this why we have govt regulation to start with -not only for this but other market actions?
but would you want the govt to tell the airlines and cell phone companies...parking lot operators... non-disaster gasoline sales, etc that they could not dynamically price?
oh.. an in times of disaster the govt takes the tolls off of roads also, right?
so I'm just trying to understand your philosophy as I thought you pretty much support free market pricing and opposed govt regulation of it but not it appears that there are things that you approve govt intervention of, right?
"isn't this why we have govt regulation to start with -not only for this but other market actions?"
Do you really not understand this?
Are you playing a game here, or you really the world's stupidest human being?
This comment has been removed by the author.
" "isn't this why we have govt regulation to start with -not only for this but other market actions?"
Do you really not understand this?
Are you playing a game here, or you really the world's stupidest human being? "
I'm a piker compared to you my friend.
your condescending and arrogant demeanor is not your best trait - you know?
why don't you try a little harder?
for someone who thinks so highly of himself.. it's leaves me wondering why you admire your navel so much...
but then again.. it takes all kinds in this world, doesn't it?
and we know your kind...
"why don't you try a little harder?"
I'll give you the benefit of the doubt, and assume that you are bobbing and weaving because you don't want to take that last step, and admit that dynamic pricing or "price gouging" if you prefer, is a good thing.
" I'll give you the benefit of the doubt, and assume that you are bobbing and weaving because you don't want to take that last step, and admit that dynamic pricing or "price gouging" if you prefer, is a good thing. "
call it what you want.
I'm asking you if you want govt involved in that decision and subsequent action.
is that too hard for you to grasp?
you talk the free market / anti-govt game here.
so do you want govt involved in the market for "cause"?
do you step out on that slippery slope here or not?
"I'm asking you if you want govt involved in that decision and subsequent action."
Of course not. I don't want government involved in any way, and haven't suggested such a thing.
You haven't answered my question. is dynamic pricing in cases where supply is limited a good thing or not, Larry?
" You haven't answered my question. is dynamic pricing in cases where supply is limited a good thing or not, "
I believe in markets to allocate supply and demand.
I support HOT Lanes especially as a way to manage a limited resource.
also... dynamic pricing is not exactly the same as variable pricing.
variable pricing changes the cost according to schedule.
dynamic changes price according to demand.
variable pricing is periodically altered when traffic gets too heavy or too light in the various time periods.
dynamic automatically adjusts
dynamic pricing of roads is not really possible without electronic transponders.
I support dynamic pricing of roads whether they are publically or privately or dual-owned in areas where there are two daily rush hours and limited ways to add capacity without huge costs.
does that answer?
"does that answer?"
No.
"I believe in markets to allocate supply and demand."
Great! I assume your use of the word "allocate" was inadvertent, and that you really meant "balance", as that word better describes the interaction of the two sides of the equation. The mechanism which drives supply and demand toward balance, is called "price".
"also... dynamic pricing is not exactly the same as variable pricing.
variable pricing changes the cost according to schedule.
dynamic changes price according to demand.
variable pricing is periodically altered when traffic gets too heavy or too light in the various time periods.
dynamic automatically adjusts"
OK, if the word "dynamic" is causing a problem, we won't use it.
First, let's agree that demand increasing and supply decreasing mean the same thing, and the indicator that one or the other has occurred, is an increase in price.
An increase in price encourages buyers to demand less, and perhaps to find substitutes, and encourages sellers to supply more, thus moving the market back toward balance. This is based on the irrefutable fact that people act in there own self interest.
This happens automatically in a free market where either supply or demand can change based on the price signal.
Are you OK with that so far? If not please don't continue reading until we agree.
In some instances, a toll bridge for example, the supply is fixed, and cannot be increased no matter how high the demand. The only way to discourage demand, if that seems desirable, is to increase prices through direct human intervention.
Human intervention in pricing, whether you prefer to call it dynamic, variable, or something else entirely, serves to decrease demand.
If you are in favor of such intervention by the bridge operator, you should also be in favor of such intervention by the operator of a private gas station as he attempts to balance demand with his decreased supply after a natural disaster.
If not, please explain why not, including why you think the two situations are different, if you think they are.
The supply of gas will eventually increase, while the supply of bridge won't, but over a short period of a few days, the comparison is valid.
Please note that my choice of a gas station is purely arbitrary, and has no special signicance, but it is just an easy example to discuss. Thousands of other examples exist if you prefer something else.
Please note also, that the station operator increasing his price, allows him to bid more for smaller available supplies from distributors, thus encouraging distributors to increase their efforts to supply him.
re: allocate and balance
I used them interchangeably but how about you giving an example that shows how they differ.
re: dynamic vs variable
it was an FYI, not a complaint.
and they are actually worth comparing how they work.
variable is a subset of dynamic I believe.
also.. FYI - infrastructure / total/maximum capacity / availability is much less elastic that other kinds of goods and services.
and that leads to the last point which is that dynamic/variable pricing goal is to SHIFT demand - to allocate it differently that a fixed price or free.
so the goal of the variable tolls is to convince some of the rush hour traffic to shift to the shoulders of he most congested periods and to reduce multiple trips that are discretionary and not necessary.
Most highway congestion looks like a double histogram and the goal of variable pricing is to change the shape the histogram - to push down the peaks and spread them making the histograms peaks shorter and fatter.
the total traffic itself may decrease for non-mandatory trips but ultimately if an area is growing the demand will grow the the width of the peaks will spread further and further
this is characterized as how long the peak rush hour takes.
if it peaks quickly in a an hour verses a rush hour that lasts 2,3 or 4 hours.
rush hours that have longer and longer time spans indicated a need for more capacity that cannot be "shifted".
Finally - when it comes to the nexus between those who pay for infrastructure verses those who use - toll are thought to better allocate the price to the people wanting the service as opposed to taxpayers everywhere paying for roads everywhere.
tolls target the people who want the service at a particular location and dynamic tolls target the time that the service is wanted.
at the general level - it works a lot like an airline shuttle - the same point A to point B service with the same fuel and staffing costs - will cost more at peak hour than non-peak.
"re: allocate and balance
I used them interchangeably but how about you giving an example that shows how they differ."
Balance. Noun #7 and verbs # 3 and #7 best describe the function of price as it affects supply and demand.
Allocate. You can allocate supply in a centrally planned economy, but that eliminates price as an influence.
You can't allocate demand, as it's the sum of individual transactions, so the word "allocate" is inferior to "balance" in the context of supply and demand.
Supply and demand are said to be in balance at a market clearing price.
"In simple terms, this means that markets tend to move towards prices which balance the quantity supplied and the quantity demanded, such that the market will eventually be cleared of all surpluses and shortages (excess supply and demand)."
But, this is a diversion from the question left unanswered.
" But, this is a diversion from the question left unanswered."
I'm pretty sure I answered...but if you think not re pose it..
"re: dynamic vs variable
it was an FYI, not a complaint.
and they are actually worth comparing how they work.
variable is a subset of dynamic I believe."
I believe it's exactly the opposite.
Variable pricing means they can change, or are changed by taking an action. Dynamic merely describes a manner in which prices vary.
Your suggestion that transponders can be used to measure traffic flow is one way to provide an input to help determine the desired price.
"also.. FYI - infrastructure / total/maximum capacity / availability is much less elastic that other kinds of goods and services."
Yes, as I pointed out, the supply of bridge isn't elastic at all.
"and that leads to the last point which is that dynamic/variable pricing goal is to SHIFT demand - to allocate it differently that a fixed price or free."
Yes, that's obvious. What's not obvious, is the benefit of shifting that demand, and to whom it accrues.
It can't be drivers, who must pay more, either in money, or in convenience, by giving up their first choice of crossing times.
It must be the bridge operator who makes more profit, unless the higher toll reduces total daily traffic enough to lower total revenue below the amount earned with an unchanging price.
"so the goal of the variable tolls is to convince some of the rush hour traffic to shift to the shoulders of he most congested periods and to reduce multiple trips that are discretionary and not necessary."
Yes. That's not in question. Of course what trips are necessary can only be determined by the individual driver, not the bridge operator, and it seems likely that most people would plan a discretionary trip for a time when traffic was light, to minimize time spent, without the additional incentive of saving money.
In other situations, who would benefit from variable or dynamic pricing of gas when supplies are limited?
"re: dynamic vs variable
it was an FYI, not a complaint.
and they are actually worth comparing how they work.
variable is a subset of dynamic I believe."
"I believe it's exactly the opposite.
Variable pricing means they can change, or are changed by taking an action. Dynamic merely describes a manner in which prices vary."
variable means changes take place on a known schedule whereas dynamic changes without notice.
"Your suggestion that transponders can be used to measure traffic flow is one way to provide an input to help determine the desired price."
that's exactly what is done.
"also.. FYI - infrastructure / total/maximum capacity / availability is much less elastic that other kinds of goods and services."
Yes, as I pointed out, the supply of bridge isn't elastic at all.
"and that leads to the last point which is that dynamic/variable pricing goal is to SHIFT demand - to allocate it differently that a fixed price or free."
"Yes, that's obvious. What's not obvious, is the benefit of shifting that demand, and to whom it accrues."
it's basically the same idea as peak pricing of airlines and cell phones...
it's less expensive to everyone to not have to pay for additional infrastructure that is unused at times.
"It can't be drivers, who must pay more, either in money, or in convenience, by giving up their first choice of crossing times."
well it is... for the same reason a person willing to pay more for a peak hour airline ticket can reliably get a seat while another traveler chooses to pay less by shifting to a non-peak time.
"It must be the bridge operator who makes more profit, unless the higher toll reduces total daily traffic enough to lower total revenue below the amount earned with an unchanging price."
I think it would be like comparing a private vs a public operation where one makes a profit and the other does not but the pricing mechanism is the same because it keeps the price lower (assuming the public version is also tolls).
"so the goal of the variable tolls is to convince some of the rush hour traffic to shift to the shoulders of he most congested periods and to reduce multiple trips that are discretionary and not necessary."
"Yes. That's not in question. Of course what trips are necessary can only be determined by the individual driver, not the bridge operator, and it seems likely that most people would plan a discretionary trip for a time when traffic was light, to minimize time spent, without the additional incentive of saving money.
In other situations, who would benefit from variable or dynamic pricing of gas when supplies are limited? "
"who would benefit" in a market-based pricing of something for which there is demand ...that varies - like fuel?
do you remember the gas lines of years past?
would you have paid more to NOT sit in a line 50 deep?
I think some folks would..and some would not... it depends on their circumstance.
If you need to be someone at a certain time and thousands of dollars are potentially at issue - a few bucks more for fuel or a toll is chump change.
but if you are on your way to get a pizza with a 5$ off coupon.. then paying more for fuel or toll is not a good choice.
and I'm sure you've heard advertisements saying you can save big bucks by booking a cruise ship in non-peak seasons...
"Finally - when it comes to the nexus between those who pay for infrastructure verses those who use - toll are thought to better allocate the price to the people wanting the service as opposed to taxpayers everywhere paying for roads everywhere."
Absolutely. Usage fees are the only reasonable way to charge for goods or services. If you use it, you pay for it.
"rush hours that have longer and longer time spans indicated a need for more capacity that cannot be "shifted"."
Do you suppose people could decide for themselves when the cost in time was too great, and find an alternate route or an alternate time of day?
"at the general level - it works a lot like an airline shuttle - the same point A to point B service with the same fuel and staffing costs - will cost more at peak hour than non-peak."
And why should that be? If costs to the airline is the same, and the supply is limited to some exact number of seats, it seems the problem is a non problem. The same number of passengers will get from A to B in the same amount of time no matter how great the demand beyond sold out flight, unlike the demand for bridge.
Is the airline maximizing profit?
" But, this is a diversion from the question left unanswered."
"I'm pretty sure I answered...but if you think not re pose it.."
OK,
*paste*
If you are in favor of such intervention by the bridge operator, you should also be in favor of such intervention by the operator of a private gas station as he attempts to balance demand with his decreased supply after a natural disaster.
If not, please explain why not, including why you think the two situations are different, if you think they are. "
From comment 12/10/2011 7:03 PM
*paste*
"You haven't answered my question. is dynamic* pricing in cases where supply is limited a good thing or not, Larry?"
From comment 12/10/2011 3:08 AM
*paste*
"1. Do you believe that dynamic* pricing of other goods such as gasoline, electric generators, bottled water, and batteries is a good thing when demand is higher? Does it more fairly distribute scarce resources?"
From comment 12/07/2011 5:05 PM
* You may remove or replace the word "dynamic" in any of the above if you wish.
"If you are in favor of such intervention by the bridge operator, you should also be in favor of such intervention by the operator of a private gas station as he attempts to balance demand with his decreased supply after a natural disaster."
I've answered this before.
you're posing a "disaster" scenario to compare to an everyday, non disaster toll.
and that question from a libertarian advocate seems to imply that if it's not "fair" to increase prices in a disaster that the remedy is government regulation.
well..government regulation can also lead to dynamic tolls... eh?
so do I support dynamic tolls on a bridge during a disaster where they would charge whatever they could for quick passage?
no.
in typical peak hr traffic, yes.
If not, please explain why not, including why you think the two situations are different, if you think they are. "
From comment 12/10/2011 7:03 PM
*paste*
"You haven't answered my question. is dynamic* pricing in cases where supply is limited a good thing or not, Larry?"
From comment 12/10/2011 3:08 AM
*paste*
"1. Do you believe that dynamic* pricing of other goods such as gasoline, electric generators, bottled water, and batteries is a good thing when demand is higher? Does it more fairly distribute scarce resources?"
same answer for all ...
in a disaster.. no....
in typical normal everyday operations - yes.
"I've answered this before."
No, you've always responded with something about bridges or government, or that you prefer markets to balance supply and demand, which I suppose means that you want the price signal to be operative mechanism.
"you're posing a "disaster" scenario to compare to an everyday, non disaster toll."
Well, maybe I wasn't clear. I could have included the information that the disaster didn't occur wasn't in the area where the station was located, so everything was normal, except the station operator couldn't get as much gas delivered as he needed. Would that change your answer?
"and that question from a libertarian advocate seems to imply that if it's not "fair" to increase prices in a disaster that the remedy is government regulation."
I think it's absolutely fair, and the best course of action, and I would never call for government regulation for any reason. How would government regulation help assure people an adequate supply of gas?
But, I was asking what your position was on using price to shift demand.
"same answer for all ...
in a disaster.. no...."
OK, then you would prefer that the station owner pumps all his remaining gas at his regular price, until he runs out, as people line up to fill up their tanks "just to be safe", and then he can close up and go home until more gas becomes available.
At that point, no one can get any gas at any price, no matter how much they need it.
Some people have full tanks and no where to go, while others can't get to work. Is that a more "fair" course of action?
You want to shift bridge demand through price changes, but not gas demand through price changes. Interesting disconnect.
"... except the station operator couldn't get as much gas delivered as he needed. Would that change your answer?"
no. the alternative to high-priced fuel is no fuel...so it's no contest.
"and that question from a libertarian advocate seems to imply that if it's not "fair" to increase prices in a disaster that the remedy is government regulation."
I think it's absolutely fair, and the best course of action, and I would never call for government regulation for any reason. How would government regulation help assure people an adequate supply of gas?"
how would govt regulation of dynamic toll pricing do any different?
But, I was asking what your position was on using price to shift demand.
"same answer for all ...
in a disaster.. no...."
OK, then you would prefer that the station owner pumps all his remaining gas at his regular price, until he runs out, as people line up to fill up their tanks "just to be safe", and then he can close up and go home until more gas becomes available.
At that point, no one can get any gas at any price, no matter how much they need it.
Some people have full tanks and no where to go, while others can't get to work. Is that a more "fair" course of action?"
in BOTH toll roads AND fuel I think normal operations are not the same as disaster operations but in both cases I was considering the disaster to be "local" and not a remote location event that affected local prices.
"You want to shift bridge demand through price changes, but not gas demand through price changes. Interesting disconnect."
there is no analog for "shifting" demand for fuel.
it's not that it could not be done but there are so many alternative fuel stations that unless they all operated that way... it would not work.
it would be like one airline dynamically pricing it's flights and the others did not....
but..they all DO.. and they all DO for the SAME REASON - that they can keep prices lower for everyone by not having have a standby fleet of planes that would get used only at rush hour but would sit idle at other times - but would be a capital cost that would have to be incorporated into the price of all tickets.
I support the way that airlines sell tickets, that cell phone companies sell minutes, that parking garages sell spaces, etc, etc... and dynamic / variable toll pricing.
more than that - I support tolls over taxes for where it is possible to build infrastructure to charge tolls.
I think the tax-funded method of building road infrastructure does not match true need to value and a user per-use toll is much more like other markets.
"there is no analog for "shifting" demand for fuel."
What? The entire notion that price balances supply and demand is an analog for the fuel demand shifting example, except that the station operator must intervene manually to change the price.
Gas prices under normal conditions respond to changes in supply and demand all the time.
The notion of a disaster was to explain the reason for low fuel supplies. You could imagine that every station in town, or region, if there was more than one, would have low supplies do to delayed deliveries. A local refinery knocked out, perhaps. So, when hoarders got done topping off, all stations could close up.
In both the bridge and gas scenarios, the main point is that demand has risen relative to supply. The market would raise the price to signal for a greater supply, but in both cases, no more supply is quickly available, so the higher price selects those who have the greatest immediate need for either bridge or gas.
"how would govt regulation of dynamic toll pricing do any different?"
There is no justification for government regulation of either bridge tolls, or gas prices, as there's no social benefit produced, in fact it can cause harm.
There are, of course, misguided restrictions on "price gouging", whatever that means, that have the opposite effect of the one intended. By forcing operators to run out of gas more quickly due to higher than normal demand, and then shut down, NO gas is available to anyone at any price. This is a predictable result of government interference in the market.
There are no winners. the station owner loses revenue due to fewer sales, his employees lose income from shorter hours, customers lose by having no access to gas, no matter how much they would be willing to pay. But, hey, we can't allow "price gouging".
The laws of supply and demand can't be legislated away.
"there is no analog for "shifting" demand for fuel."
What? The entire notion that price balances supply and demand is an analog for the fuel demand shifting example, except that the station operator must intervene manually to change the price."
not for "rush hour"
"Gas prices under normal conditions respond to changes in supply and demand all the time."
but they do not go up and down according to hourly "demand"
"The notion of a disaster was to explain the reason for low fuel supplies. You could imagine that every station in town, or region, if there was more than one, would have low supplies do to delayed deliveries. A local refinery knocked out, perhaps. So, when hoarders got done topping off, all stations could close up."
but a disaster is not rush hour
"In both the bridge and gas scenarios, the main point is that demand has risen relative to supply. The market would raise the price to signal for a greater supply, but in both cases, no more supply is quickly available, so the higher price selects those who have the greatest immediate need for either bridge or gas."
there is a difference between a normal twice-dealing change in demand that resets each day and a out of the ordinary disruption of normal supply and demand.
"how would govt regulation of dynamic toll pricing do any different?"
your premise is wrong.
try your premise on airline prices or parking pricing or cell phone minutes or electricity pricing (in some markets).
"There is no justification for government regulation of either bridge tolls, or gas prices, as there's no social benefit produced, in fact it can cause harm."
if a private entity builds a bridge (or an airline, or cell towers, or parking garages or power plants can it use dynamic pricing to manage demand?
if private entities can do it why not govt?
"There are, of course, misguided restrictions on "price gouging", whatever that means, that have the opposite effect of the one intended. By forcing operators to run out of gas more quickly due to higher than normal demand, and then shut down, NO gas is available to anyone at any price. This is a predictable result of government interference in the market."
"gridlock" is what happens when twice daily traffic exceeds capacity that at other times of day sits vacant. expensive, unused infrastructure.
"There are no winners. the station owner loses revenue due to fewer sales, his employees lose income from shorter hours, customers lose by having no access to gas, no matter how much they would be willing to pay. But, hey, we can't allow "price gouging".
The laws of supply and demand can't be legislated away. "
we mostly agree - that's why it's so odd that you don't see that dynamic pricing is a logical and legitimate way to manage periodic changes in supply/demand both public and private.
here's another example of dynamic pricing:
http://www.srpnet.com/prices/home/ChooseYourPricePlan.aspx
notice that you have the option.
you could do that with toll roads also but the transponder would have your basic plan on it.
you'd pay a fixed toll (but higher) for every trip...
unless you had the TOD plan where you'd get a discount for non-rush hour trips (but pay more for rush hour).
but the idea is exactly the same.
the power company saves money (and passes the savings on) if it can shift demand from peak to non-peak times.
the bridge scenario would be that if you wanted to fully accommodate traffic at all times - it would need to be bigger, have more lanes to handle rush hour.
that would make the bridge more expensive and if tolled with a static toll - the toll would cost more for everyone (in order to pay for the more expensive bridge).
so.. a smaller, cheaper bridge can be built that will end up with cheaper tolls IF you can "shave" rush hour traffic and move it to non-peak times.
you could do this with a ration system - by only allowing traffic that would not slow down the flow - on a first-come, first-served - you wait if you are not first.....
or they could do like the airlines do when they are overbooked - offer incentives for waiting...deferring... a cheaper toll....
you simultaneously say this is the govt "interfering" by altering prices... and at the same time saying that the govt IS justified during times of disaster.
you equate the two but they are not the same.
private enterprise uses dynamic pricing all the time in non-disaster situations... where demand can vary.
do you think the govt should step in and tell the airlines or the cell phone companies that they cannot institute peak demand pricing for non-disaster operations?
"but they do not go up and down according to hourly "demand""
They easily could if the operator wanted to maximize profit.
But you are trying to find differences between bridges and gas stations to avoid answering the question of why the laws of supply and demand should be replaced by price controls during an emergency.
We know that price controls don't work well, so why should they be imposed, especially in an emergency when allocation of an item such as gas becomes more critical?
Although you haven't said so, I assume you favor government imposed limits on prices, when you say that station operators shouldn't change prices during an emergency.
Perhaps a better example would be hotel rooms:
In an emergency, a tornado, perhaps, many people must find alternate housing. At regular room rates, the Addams family might rent 3 rooms to accomodate everyone comfortably. So might the Bradys. Soon, all rooms are taken, and the Duggars must camp in the woods.
If the hotel operator can raise rates to reflect this higher demand, perhaps the Addams and Brady families would decide that their group could squeeze into fewer rooms, leaving more available for others.
The hotel capacity, like bridge capacity, can't be increased, but pricing per demand, in effect, makes the fixed supply of rooms available to more people. On the bridge this would be equivilent to car-pooling.
This comment has been removed by the author.
"but a disaster is not rush hour"
Didn't we agree that more demand and less supply are just 2 ways of explaining the same imbalance?
Why should prices remain unchanged in either case?
"but they do not go up and down according to hourly "demand""
"They easily could if the operator wanted to maximize profit."
not if there are other competitors who would not do the same.
fuel is a commodity. infrastructure is not.
"But you are trying to find differences between bridges and gas stations to avoid answering the question of why the laws of supply and demand should be replaced by price controls during an emergency."
I'm not avoiding the question. I'm pointing out that for a wide variety of things sold that there is a difference between normal operations and disasters and what you've done is pick one as a disaster scenario to compare against others in non-disaster scenarios and that's just not legitimate.
"We know that price controls don't work well, so why should they be imposed, especially in an emergency when allocation of an item such as gas becomes more critical?"
that's an issue - separate from dynamic pricing in normal operations.
"Although you haven't said so, I assume you favor government imposed limits on prices, when you say that station operators shouldn't change prices during an emergency."
actually there's an argument that they should if it means that supplies will increase.
"Perhaps a better example would be hotel rooms:"
"In an emergency, a tornado, perhaps, many people must find alternate housing. At regular room rates, the Addams family might rent 3 rooms to accomodate everyone comfortably. So might the Bradys. Soon, all rooms are taken, and the Duggars must camp in the woods."
hotel rooms cannot increase (quickly) in response to higher demands.
"If the hotel operator can raise rates to reflect this higher demand, perhaps the Addams and Brady families would decide that their group could squeeze into fewer rooms, leaving more available for others."
perhaps -but to add to your premise...local events are not disasters scenarios but they do affect the price and availability of rooms...with additional costs for added occupants - i.e. roller beds.
"The hotel capacity, like bridge capacity, can't be increased, but pricing per demand, in effect, makes the fixed supply of rooms available to more people. On the bridge this would be equivilent to car-pooling."
similar but again we need to distinguish between a true disaster and a local event that puts increased demands on rooms.
but sans the disaster premise..we'd probably both agree that "dynamic pricing" is appropriate even if it was the government renting the rooms, eh?
"not if there are other competitors who would not do the same."
Do you understand that excess demand creates a shortage at the regular price, and that a higher price relieves that shortage by decreasing demand?
If there are competitors who can provide additional supply, there isn't a shortage. No single operator would raise their price if they were the only ones low on gas. We are assuming a shortage here.
"I'm not avoiding the question. I'm pointing out that for a wide variety of things sold that there is a difference between normal operations and disasters and what you've done is pick one as a disaster scenario to compare against others in non-disaster scenarios and that's just not legitimate. "
Then maybe you could explain why higher demand or lower supply are different when caused by a disaster.
"similar but again we need to distinguish between a true disaster and a local event that puts increased demands on rooms."
And what is that difference? higher demand is higher demand. It doesn't matter what caused it, increasing prices will help balance supply with demand.
"actually there's an argument that they should if it means that supplies will increase. "
And that is my point. Increasing prices will help balance supply and demand. What is your argument?
You seem determined to avoid saying that price gouging is a good thing.
[Time of Day pricing] "- notice that you have the option."
Yes, there is the option. I have no problem with TOD pricing, as it may reduce peak demand. Exceeding capacity of an electrical supply causes shutdowns to prevent overloaded components from melting, and/or bursting into flame, so reducing peak demand has real benefits for everyone.
One more time I will point out that the capacity of a bridge is constant, and cannot be exceeded. At the max capacity of the bridge, adding demand will only cause traffic to slow.
In every other example, the gas station, the hotel, and the electric provider, the supply will run out - or shut down - and there wont be any more.
That isn't true of the bridge, which will always, at any time, provide a crossing for every car that wants it, although maybe not at the speed commuters might prefer.
The benefit of raising prices of a bridge toll, accrues to the operator, in the form of higher revenue, unless total demand is reduced enough by the higher price to lower overall daily revenue.
Most costs of operating a bridge are fixed, and depend only on the passage of time. Those remain constant whether cars cross the bridge or not. Painting and would be an example. Some other costs depend entirely on the number of cars that cross, and can be assigned a dollar cost per car. Wear and tear on the roadway would be an example.
These per car costs are the same whether one car crosses per minute, or 320 cross per minute. Cars crawling across the bridge causes the same amount of wear per car as cars sailing across at 60 mph.
Steering demand to other times of day by dynamic pricing doesn't affect any costs at all, but can increase profit for the bridge operator.
Commuters can already decide for themselves whether the ability to cross at rush hour is worth the extra cost in travel time. Those who don't find it worth the cost can already chose an alternate route or time of day.
Adding a money cost for peak time periods will further shift demand, but will increase costs for all commuters, either in additional travel time, money, or the inconvenience of commuting at a different time of day.
Hey, I'm all in favor of dynamic (or other word) pricing, but you need to understand why you are doing it. Increase profit for operator? Fine. Benefit commuters? Probably not. You are just asking them to determine how much their travel time at rush hour is worth to them.
In every other example, varying prices provides a benefit to customers.
"but sans the disaster premise..we'd probably both agree that "dynamic pricing" is appropriate even if it was the government renting the rooms, eh?"
No. A private operator can charge any price they wish, at any time, and under any circumstances. They have an incentive to be competitive, and attract as many customers as possible.
So, dynamic pricing of rooms is fine for a private business, but government has no business deciding prices for them, or worse yet, being in the hotel business, or car business, or bank business, or any business.
"not if there are other competitors who would not do the same."
Do you understand that excess demand creates a shortage at the regular price, and that a higher price relieves that shortage by decreasing demand?"
do you understand that fuel is widely available even at high demand periods and most folks can "wait out" temporarily higher priced fuel.
"If there are competitors who can provide additional supply, there isn't a shortage. No single operator would raise their price if they were the only ones low on gas. We are assuming a shortage here."
yes - but the parallel to dynamic pricing does not work. there are no "rush hours" for fuel and even if there were, most people have enough fuel onboard to wait out the temporarily higher price.
not sure what your point here is since the debate is about dynamic pricing.
"I'm not avoiding the question.
Then maybe you could explain why higher demand or lower supply are different when caused by a disaster.
I think that was your premise ... where you have attempted to equate dynamic pricing with supply/demand in a disaster and the two are not the same but even more dynamic pricing at rush hour is even further removed from the disaster premise.
"similar but again we need to distinguish between a true disaster and a local event that puts increased demands on rooms."
And what is that difference? higher demand is higher demand. It doesn't matter what caused it, increasing prices will help balance supply with demand.
I think you are the one that asked if it was okay to raise prices in a disaster and not have the govt step in - correct?
I do not think the govt should step in unless peoples lives are at risk because of price gouging.
people remember who price gouged after the disaster is over with.
"actually there's an argument that they should if it means that supplies will increase. "
And that is my point. Increasing prices will help balance supply and demand. What is your argument?
that infrastructure is not a commodity or supply that is elastic and can expand to meet demand.
way back.. I asserted that dynamic pricing of infrastructure was a "good" thing - actually a market-based "libertarian" idea to "balance" supply/demand of a fixed inelastic product/service that had peak hour demand periods.
I still do.
didn't you basically oppose the concept of dynamic pricing on a bridge and I supported it?
didn't you say that dynamic pricing is price gouging?
perhaps I did not understand you and we really agree?
"didn't you basically oppose the concept of dynamic pricing on a bridge and I supported it?"
No. I don't oppose dynamic pricing, but you haven't explained why it's desirable to use it for bridge tolls, and not for shortages of gasoline or any other good in high demand or short supply.
"didn't you say that dynamic pricing is price gouging?"
I equated dynamic pricing of bridge tolls, which you approve of, to raising gas prices when supplies are low, which I believe you don't approve of, and would call price gouging.
I,ve given you tons of explanation, and definitions of every conceivable term, and I haven't yet gotten a direct answer, so I can only conclude that you are intentionally obfuscating and pretending not to understand.
Your main objection seems to be that there's a difference between normal times and disasters, but you haven't explained what the difference is.
"perhaps I did not understand you and we really agree?"
It's possible you don't understand me, but there's no indication we agree.
" No. I don't oppose dynamic pricing, but you haven't explained why it's desirable to use it for bridge tolls, and not for shortages of gasoline or any other good in high demand or short supply."
I sure have. it saves money by managing traffic such that a smaller, cheaper bridge can be built rather than a larger bridge that sits unused outside of rush hour.
I also told you that it's the same model as airline pricing and cell phone minutes pricing.
So I HAVE told you ...
AND I ALSO pointed out that infrastructure is not the same as a commodity that is elastic in supply. Infrastructure is not.
"didn't you say that dynamic pricing is price gouging?"
I equated dynamic pricing of bridge tolls, which you approve of, to raising gas prices when supplies are low, which I believe you don't approve of, and would call price gouging.
you're comparing apples to kumquats.
"I,ve given you tons of explanation, and definitions of every conceivable term, and I haven't yet gotten a direct answer, so I can only conclude that you are intentionally obfuscating and pretending not to understand."
then you are deaf and blind..because I HAVE ...
"Your main objection seems to be that there's a difference between normal times and disasters, but you haven't explained what the difference is."
let's do a bridge.
there are normal operations and there are disaster operations.
you want to compare a normally operating bridge to a disaster fuel shortage...
it don't compute guy.
"perhaps I did not understand you and we really agree?"
It's possible you don't understand me, but there's no indication we agree
since I've seen you regularly argue both sides of an issue ... more than once.. in CD... I know your game...
"Your main objection seems to be that there's a difference between normal times and disasters, but you haven't explained what the difference is."
"let's do a bridge."
Instead let's explain what the difference is between excess demand due to a shortage and excess demand due to excess demand.
"there are normal operations and there are disaster operations."
And what's the difference, in respect to price?
if you do not confuse disaster supply and demand with normal, typical supply/demand and your do not confuse a supply that is elastic with a supply that is not...you can sort it out.
For instance, you can select just about ANY supply - commodity or infrastructure and there would be two modes - normal operations and disaster operations.
for instance, infrastructure - in a disaster would operate differently. Tolls would be suspended and in coastal areas a contra-flow instituted.
this would be the case no matter if the road was a public or private road.
so once you recognize that disaster operations are not normal operations and agree to restrict the scenario to one or the other but not mix them... you can analyze each.
In non-disaster operations - infrastructure is fixed and is not elastic like fuel might be.
You cannot call for more deliveries of infrastructure like you can fuel.
fixed infrastructure examples - abound.
electric utilities are an example.
at peak hour - the utilities have to provide more power.
In order to do that without using time-of-day / dynamic pricing - they'd have to have more power plants, many of which would sit idle during non-peak hours but those costs would have to be borne by all ratepayers.
time-of-day / dynamic pricing - lets the people who can defer their use to non-peak - save money and more appropriately allocates the increased costs for peak power to those that have to have it.
and everyone pays lower rates because there are less power plants needed if the peak demand is reduced.
this has nothing to do with a disaster.
In a disaster situation.. you'd have things like rolling brownouts and blackouts and emergency generators, etc.
so the question is - is dynamic pricing an appropriate market-based pricing concept for infrastructure - in non-disaster scenarios.
And the answer is - yes.
it's perfectly appropriate and it is market-based.
this is not my theory. It's actual practice in a wide variety of situations involving inelastic supply like infrastructure.
it's a better way to "right-size" infrastructure and to not have to build more infrastructure than you really need - for most of the day where it will sit unused - but the cost of it has to be passed on to customers anyhow.
You win, Larry, you have successfully evaded the argument.
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