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Elasticity: Toll Roads - Activity

The Birmingham Northern Relief Road (BNRR)

Anyone who has to travel on the M6 north or south along the section that links with the M40 and M5 will know that it is highly congested, to say the least. The average speed of vehicles using this section was estimated to be around 17 mph; workers in the RAC's regional operational centre at Walsall in the West Midlands, which overlooks the M6, reckon they can set their watches to the time when queues will start to build on Junction 8 of the M6 and M5. The road was originally designed to carry 72,000 vehicles per day; currently over twice that many use the road.

With this problem in mind, the Department for Transport commissioned the Birmingham Northern Relief Road (BNRR) - 27 miles of 3 lane motorway linking the M42 south of Birmingham with the M6 to the North. The road cost £485 million and was opened in December 2003.

What is unusual about this motorway is that it is the first toll motorway in the UK. The tolls are operated by a company called Midland Expressway Ltd. Midland Expressway initially announced the charges for the tolls as follows:

• Cars - £3 during the day and £2 at night (11.00pm - 6.00 am)
• Heavy Goods Vehicles (HGVs) - £11.00 during the day and £10 at night

On 13th August 2004, the 10 millionth customer paid their toll. The lucky driver was given a trip to Portugal! The initial opening period saw prices discounted (cars were £2) but the standard prices initially quoted were then applied (they now stand at &3.50 for a car during the day, and &2.50 at night). Midland Expressway also announced that for a five-month trial period from July 2004, HGVs would receive a discount of £6 during the day and £5 at night.

Image: Reproduced by kind permission of CAMBBA Construction Group, M6 Toll Project Office, Off Watling Street,Shenstone,Staffordshire WS14 OGB http://www.m6toll.co.uk

What price to charge for the toll may have been decided by considering a number of factors:

• The cost of building the road
• The expected usage of the road and therefore the time taken to 'break even'
• The cost of maintaining the road
• The price elasticity of demand for road use
• The cross price elasticity of demand for other roads

Image: Toll booths on the M6 toll road. Copyright: Ian Britton, FreeFoto.com.

We are going to focus on the latter two factors. Clearly the aim of building the motorway was to relieve congestion on the M5/M6. In order for this to happen, enough people have to be persuaded to use the new motorway even though by doing so they will incur some private cost. Charge too high a price and people will avoid using the road, too low a price may not generate enough revenue to make a profit. An example may serve to highlight this:

The Golden Gate Bridge spanning San Francisco Bay in the United States is a toll bridge. In September 2002, the toll was increased from $3 to $5 (£1.80 - £3.00). As a result, demand fell by 82,000 over the next three months but revenue rose by 45%!

(Source: Bob Melrose, KCBS News)

Image: The Golden Gate Bridge

The decision by Midland Expressway Limited to set different prices for the daytime and for the night time may be influenced in part by an attempt to encourage people to use the road during the night time, when it is less busy. Studies in Spain suggest that the price elasticity of demand for tolls range from -0.2 to -0.3 but, if there were alternative routes available, this could be as high as -0.83. (See The Demand Elasticity on Tolled Motorways by Anna Matas and José-Luis Raymond [PDF, 515 KB].) That same study estimates the price elasticity of demand for petrol as being between -0.34 and -0.53.