Number Crunchers: Addressing the Pitfalls and Practices of Dynamic Pricing Schemes

Our recent MnPASS research is featured in the annual magazine Tolltrans 2014 (p.36) (by Timothy Compston):

I-394 MnPass Lane Design (Source: FHWA)
I-394 MnPass Lane Design (Source: FHWA)

Number Crunchers: Addressing the Pitfalls and Practices of Dynamic Pricing Schemes

The principal investigator for that project is the University of Minnesota’s John Hourdos, director of the Minnesota Traffic Observatory, who feels that even today HOT lanes are still a relatively new concept. “Although technology enables ideas on pricing to be implemented, in only a few cases is the effect on a driver’s lane choice fully understood,” he suggests. Given this knowledge gap, Hourdos says the project is aiming to not only understand and improve the MnPASS pricing algorithm itself but – at a more holistic level – to build a simulation tool for testing and evaluating a pricing strategy on any freeway (see Effective measures sidebar).

“The MnPASS algorithms were first set up in 2004,” reveals David Levinson, who in addition to being the co-investigator for the MnDOT-sponsored research, is also a professor of Civil Engineering at the University of Minnesota and director of the Nexus research group. “They were some of the first dynamic pricing algorithms put into the field so we were keen to look at them and the trade-off between efficiency and reliability. You can let more people into the lanes but the risk is that you increase traffic breakdown and, on the other side of the coin, if you are overly conservative then this could prevent you from saving more people more time.”

One of the questions that Levinson and the other researchers involved were keen to answer was how the different values used in the MnPASS algorithm could be changed to make things smoother or potentially take account of other factors. “Right now it is just based on the HOT lane itself – it doesn’t take into consideration the density in the general-purpose lanes, for instance.”

Perhaps one of the most interesting findings the team has made so far has come from its series of field experiments. “Using the existing algorithm we tinkered with the rates a little to measure people’s elasticity on price,” Levinson details. The prices were lowered in two experiments on I-394 and I-35W and then a third was conducted on I-394 where the price was increased. “We
wanted to see how sensitive demand is to price,” he adds. “It turns out raising the price attracted more users. Our belief is that people are actually using the price as a signal of the time savings as they have no other way of gauging the situation. So when the price goes up, they think they’ll save more time so consequently people on the margins are more likely to use the system.”