Topic:
Pricing tactics of Tunnels in
Hong Kong
Christie
Amy
Katherine
Stephanie
Information about 3 tunnels
Tunnels
Operated by
Cross-Harbour Cross Harbour
Tunnel (CHT) Tunnel Company
Vehicles daily
Toll range
122,900 *
$8-$30
New Hong Kong
Eastern
Tunnel Company
Harbour
Crossing (EHC) Limited
64,000 *
$13-$75
Western Harbour
Tunnel Company
Limited
48,800 *
$22-$115
Limited
Western
Harbour
Crossing
(WHC)
* data from 2007
Traffic Volume - Cross Harbour Tunnel(CHT)
Traffic Volume - Eastern Harbour Tunnel(EHT)
Traffic Volume - Western Harbour Tunnel(WHT)
What is the effect of raising toll?
‧Because EHC and CHT are substitutes
• EHC ↑toll  daily volume of CHT ↑3%
• EHC’s revenue ↑> $100,000,000
• Inelastic demand of EHC ( % ↓in quantity < % ↑in toll)
• If ↑in fuel prices > ↑in toll  use EHC as before
How can unequal distribution of cars be solved?
(a). Extension of franchise
* With low transaction cost negotiate with the harbour crossings to
reduce toll
* Extended franchise help cover the decrease in revenue of harbour
crossings
* May reduce congestion in CHT
(b). Should Government purchase the three tunnels?
Citizens:
• good idea
• Reason: * government can then freely regulate the toll fee.
Government:
• may not be a good idea
• Reasons: * the purchasing cost is very high
* change the private property right system into a communist
system (with no exclusive use right, income right or transfer
right).
* High institutional cost
Conclusion: Government should not purchase the three tunnels
Pricing of the Tunnels
• Without congestion
cost of serving extra car is zero
ie. MR=MC=0
• Ed=1
• Toll: charge on average cost
 consumer surplus will be extracted
Price discrimination
• Same cost
→MC=0
cost for serving all the vehicles are the same
• Same Services/ Goods
→ same services provides by the tunnel company
same tunnel
• Different prices
→ different vehicles will be charged different price
Price discrimination
• Market is separated
Example:
lower price for taxi,
higher price for private cars
Western Harbour
Tunnel
Taxi
$40
Private car $45
Eastern Harbour
Tunnel
Cross Harbour
Tunnel
$25/15
$10
$25
$20
Argument
• It is common to see traffic congestion during
business hours, so people claim that why the tunnel
companies do not charge a peak-hour pricing. They
can charge higher prices for users during peak hours
in order to relieve traffic congestion.
• Why do they not charge different price in different
period?
Explanation
There is the existence of transaction costs :
1. Information cost
•
The tunnel companies need to carry out several research to
determine the peak hours
2. Enforcing cost
•
They need to impose a series of regulations on the peak-hour pricing
3. Policing cost
•
They need to execute the regulations
Automatic Toll Collection Facility
Autotoll Only (toll booth sign)
Lane Sign (Autotoll only)
What cost(s) can the facility save and raise?
Saved:
Raised:
•
Time cost of the consumers
(i) Monitoring cost
•
Cost of defining and
enforcing property right
(ii) Institution cost
•
Labor cost
Saved costs
(i) Time cost
- no need to spend time on paying money.
(ii)Cost of defining and enforcing property right
- the receiver no need to identify what type of
the car is
(iii) Labor cost
- no need to hire workers for receiving toll
Raised costs
(i) Monitoring cost
-some people may not have right to use this
facility
-need to monitor the people who using the system
(ii) Institution cost
- when adding automatic toll collection facility,
they may need to add many input, such as technical
facility etc…