Pricing Transportation Infrastructure Executive Program

Day 1 – Monday October 18, 2010

Time Topic

Session 1.1
9:00 – 9:30 am

Introduction and Rationale for Course

Session 1.2
9:30 – 10:30 am

Costs
- Distinction between accounting and economic costs
- Distinction between fixed and variable costs
- Distinction between sunk and non-sunk costs
- The short versus long run in entry/production/shutdown decisions
- Concept of natural monopoly
- Empirical evidence on cost conditions

Faculty: Ian Savage

10:30 – 11:00 am

Break

 Session  1.3
11:00 – 12:00 am

Pricing  a Single Product
- The benchmark – socially optimal pricing
- The issue of funding sunk costs with socially optimal pricing
- Basic single-product monopoly pricing
- Comparison of monopoly with socially optimal pricing

Faculty: Eric Schulz

12:00 – 1:00 pm

Lunch

 Session 1.4
1:00 - 2:30 pm 

Discriminatory Pricing to Recover Fixed Costs
- First degree price discrimination
- Second degree price discrimination / two-part tariffs
- Third degree price discrimination
- Budget constrained third-degree price discrimination (Ramsey pricing)
- Implementation issues for price discrimination

Faculty: Ian Savage

2:30 – 3:00 pm

Break

 Session 1.5
3:00 - 4:30 pm

Pricing in a Competitive Marketplace
- A dominant firm with numerous small “fringe” competitors
- Oligopolistic competition between large firms
- A facility with market power but with an (imperfect) substitute
        (including “free” substitutes)
- Pricing with a complementary facility (eg. Chicago Skyway and
        Indiana Toll Road)

Faculty: Ian Savage

Session 1.6
4:30 - 5:00 pm

Review of the day’s material

 5:00 – 6:30 pm

Welcome Cocktail Reception

Day 2 – Tuesday October 19, 2010

Time Topic

 Session 2.1
8:30 – 10:00 am 

Congestion Pricing I: Static Models
- Static models of pricing of a congested facility
- Bottleneck and queuing model
- Examples of congestion pricing
- Will congestion pricing recover fixed costs?

Faculty: Ian Savage

10:00-10:30 am

Break

 Session 2.2
10:30 - 12:00 am

Congestion Pricing II: Dynamic Models
- Dynamic pricing of congested facilities
- Pricing and operational efficiency (system reliability)
- Reactive versus predictive pricing models
- Pricing in a network

Faculty: Hani Mahmassani 

12:00 – 1:00 pm

Lunch  

 

 Session 2.3
1:00 - 2:00 pm

Pricing through Auctions 
- Types of auctions
- First price versus second-price auctions
- Auctions to allocate capacity (private value auctions)
- Auctions for the rights to build and/or operate a facility (common value
    auctions when the value of the good is unknown)

Faculty: Eric Schulz

2:00-2:15 pm

Break

 Session 2.4
2:15 - 3:15 pm

Pricing in a Public/Private Partnerships
- Tension in setting the objectives of pricing
- Separation of infrastructure and operations
- Types of public/private partnerships
- Nature of leases and operating arrangements

Faculty: Ian Savage

3:15 – 3:45 pm

Break

 Session 2.5
3:45 - 5:00 pm

Price Regulation  
- Regulation of privately controlled facilities with market power
- Forms of price and/or profit regulation
- Perverse incentives engendered by regulation
- “Quality” regulation
- Information asymmetry and reporting requirements
- Problems of regulation
- Alternatives to regulation

Faculty: Ian Savage

Session 2.6
5:00 - 5:30 pm

Review of the day’s material

Faculty: Ian Savage

Day 3 – Wednesday October 20, 2010

Time Topic

 Session 3.1
8:30 – 10:00 pm

Pricing and Evaluation of Capacity Expansions and New Facilities
- Contrast between expended congested and uncongested facilities
- Finance new capacity by user pricing versus general taxation
- Commercial evaluation versus comparing social costs and benefits
- Using congestion fees to provide an “optimal” facility size

Faculty: Ian Savage

10:00 – 10:30 am

Break

 Session 3.2
10:30 - 12:00 pm

Equity issues in Pricing
- Social equity and price discrimination
- Political equity
- Social acceptability

Faculty: Hani Mahmassani

 Session 3.3
12:00 - 12:30 pm

Course Summary and Graduation

Faculty: Ian Savage

12:30 pm

Adjournment (Lunch available)