a pricing strategy that regulates demand without increasing the supply
Congestion pricing entails surcharging users in excess demand situations for public transport, electricity, data and communications and road pricing to reduce traffic congestion. The policy objective is to leverage cost to make users sensitive when consuming during peak demand and pay for additional congestion, encouraging demand redistribution.
Implementation have reduced congestion in urban environments; however, critics point out that the system is not equitable even as many economists believe in the effectiveness of road pricing in some form. Four types are in use:
a cordon around downtown areas;
area wide congestion pricing;
city center toll ring, and
congestion pricing, where access to a location is priced.
Economic rationale at zero cost, demand exceeds supply, causing shortages corrected with equilibrium prices instead of increasing supply; this entails price increases when and where congestion occurs.
congestion pricing is one demand side efficiency strategy
A quantity supplied is less than the quantity demanded at what is essentially a price of zero. If a service is provided free of charge, people tend to demand more and waste it instead of paying the price that reflected its cost. Congestion pricing charges help allocate resources to their most valuable uses.
Road congestion pricing is found almost exclusively in urban areas and city centers whereas cordon area pricing is a fee paid by users to enter a restricted area. Its effectiveness has improved with technological advances in toll collection.
Cities that have implemented congestion pricing schemes show traffic volume reductions from 10% to 30% as well as reduced air pollution. In some locations, net earnings are invested to promote mobility management, reduce air pollution, initiate pedestrian and cycling strategies as well as upgrade public transportation.
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