Abstract for: A dynamic model of two competing cities: the effects of competition on tolls and land use
In this paper we model the impacts of competition between cities when considering demand management strategies on both the optimal tolls and business and residential location choices. The work builds on earlier work which studied competition in a small network using a static equilibrium approach. That work showed that while both cities have an incentive to charge alone, once they begin, they are likely to fall into a Nash trap or prisonerís dilemma where both cities are worse off. Our research extends this by setting up a system dynamics model which includes all modes and longer term location responses. The model is used first to study an isolated city and a simplified welfare function is used to determine the optimal toll around the central area and its impacts on location decisions and other transport indicators. A twin city is then added. Traffic from the neighbouring city may be charged and the revenue retained - a form of tax exporting behaviour which should increase the welfare of the city. We study the impact on the optimal tolls set by the cities and how the game develops between cities of equal size and amenity. The impact on location decisions and other transport indicators are presented along-side the implications for regulation and the development of cities within regional partnerships.