Micro-foundations of congestion and pricing: A game theory perspective

This paper develops congestion theory and congestion pricing theory from its micro-foundations, the interaction of two or more vehicles. Using game theory, with a two-player game it is shown that the emergence of congestion depends on the players' relative valuations of early arrival, late arrival, and journey delay. Congestion pricing can be used as a cooperation mechanism to minimize total costs (if returned to the players). The analysis is then extended to the case of the three-player game, which illustrates congestion as a negative externality imposed on players who do not themselves contribute to it.