Are Roads Really a Natural Monopoly?
Private roads shine in their ability to smooth and reduce traffic, and as a result, save our time, save billions of dollars of labor and leisure hours, and reduce pollution from cars.1 Moreover, they would save the lives of a portion of the tens of thousands of annual victims of fatal crashes by making roads safer. This cornucopia of benefits is made possible by introducing currently government-run roads to market prices, allowing consumers to coordinate who drives when and how much, and signaling to entrepreneurs to enlarge road systems and design them to be smoother-flowing and safer to capture profits from consumers who demand these services. However, skeptics criticize the viability of private roads on the grounds, among others, that roads are natural monopolies. The might of the market overcomes this concern.
Natural monopolies in neoclassical economics are characterized by services with high fixed-costs and low additional marginal costs per customer once the expensive, fixed infrastructure is finished. Examples of alleged natural monopolies include electricity grids, telephone lines, gas pipelines, and roads. Given the high cost and inefficiency of having two competing roads that both go from A to B running parallel to one another, not enough of such competition will exist because roads are a natural monopoly, the argument goes. As a result, road owners can abuse their leverage as the owners of the only road from A to B to force consumers to pay high prices and offer low-quality roads, or even blockade individuals. There are several issues with this objection. First, we currently face not only supposed natural monopolies at the scale of individual roads, we face a legal monopoly on the highways from sea to sea, and municipal monopolies on all of the roads in entire cities. The state has immensely greater power to abuse than any private road owner would.
Returning now to private roads, the longer the distance one is traveling, the more possible routes there are to get to the destination. Even if Jones has no choice but to use road X to get to the local grocery store, because people traveling long distances do have a choice in whether they take road X as part of their longer trip or not, the owner of road X will face pressure to make road X more appealing in quality and price to long-distance travelers, benefiting local drivers as well.2
Even if Jones is forced to use road X when he drives to certain locations, he has flexibility in the upper bound of how often and to what extent he uses road X. If road X is high-quality and reasonably priced, Jones won’t just use it when he absolutely has to, but rather he will choose to go out more often and stay home less. When he does go out, he will be more willing to go to locations that require staying on road X for a greater distance, such as going to a far away movie theater rather than the nearby bowling alley, which is relevant if a road or highway charges by distance traveled. Thus, even when road X has no other roads to compete with, which it does indeed in the case of long-distance travelers, it competes against Jones’ phone, TV, computer, video game console, board games, books, etc.
Any road providers who make part or all of their income via billboards and other advertisements, vendor stands, stores, or pit stops on property on or adjacent to their roads have an incentive to maintain a smooth and constant flow of traffic to constantly draw new eyes and wallets, which would increase the amount they could charge for advertisement and vendor space.3
The question of an abusive proprietor of a road in a residential area would seldom even be raised, as networks of residential roads would be owned by the homeowner associations, covenant communities, or simply residents of the neighborhoods in which they are located, and have predetermined contracts guaranteeing road use to those buying homes in those neighborhoods. No one buys a house without also buying legal ownership of something as essential as the roof or driveway of the house. Likewise, in the future of more widespread privatized roads, road access rights will almost certainly be bundled into home purchases as much as the roofs or driveways of homes are now. As an example, a network of neighborhood streets with two hundred homes might be 1/200th owned by each homeowner, including a contract guaranteeing permanent road access to each homeowner.
Finally, with the matter of the roads immediately connected to people’s homes and in their neighborhoods solved, this provides breathing space (the longer the distance traveled, the more possible routes) such that this larger unit, the neighborhood, would likely possess multiple competing options for roads connecting it to the rest of the world from the north, south, east, and west.
Small is the gate and narrow the road that is centrally planned, but wide is the gate and broad is the road that is privately owned.
- 1. Robert P. Murphy, “A Gas Tax Hike is the Wrong Way to Fund Highways,” Mises Wire, 2018.
- 2. Price discrimination against local drivers could admittedly complicate this issue, but it would be costly to enforce and draw public contempt.
- 3. If road owners attempted to increase revenue the opposite way, by intentionally causing traffic jams to force drivers to view advertisements for longer periods of time, or purchase food from the road owners’ stores, this may work in the very short term until consumers learned of this tactic, and then ceased to patronize the road altogether. Only perpetual good service can secure perpetual profits.