9.3.3 Increased output in imperfectly competitive markets
"Where there is imperfect competition in a market, we've seen that the value placed on additional production, the price, is normally higher than production costs. Firms and consumers would therefore be jointly better off if firms were to increase production. If better transport induces firms to increase production there are precisely such benefits ... the value attached to time savings would underestimate the true benefits."
As set out by the DfT (2005) WB3 is calculated on the basis of an "uprate factor" V applied to the direct cost savings to firms, i.e. business time savings (BTS) and reliability gains (RG).
WB3 = (BTS + RG).V
where V is an uplift factor based on price-cost margins. The simple and recommended way of calculating this benefit is to apply an appropriate uplift to business user benefits. At present this uplift is 10% in almost all cases.
Recent research commissioned by Transport Scotland has indicated that price cost margins are likely to be higher in rural areas.2 In such situations, it is reasonable to apply a higher uplift. For schemes in very remote rural areas, defined in accordance with the Scottish Government 8-fold urban rural classification as areas with a population of less than 3,000 and over a 60 minute drive time to a settlement with a population of 10,000 or more, an uplift of 20% should be applied. Note that, for schemes which impact on journeys across different area types, the uplift should be applied only to business journeys which originate or terminate in very remote rural areas. Due to limited evidence for the scale of this impact (data is only available for fuel costs, rather than all business costs), the 20% uplift should only be applied as a sensitivity.
[1] Transport, Wider Economic Benefits and Impacts on GDP, Department for Transport (2006)
2 Laird, J. (2009) Review of Economic Assessment in Rural Transport Appraisal http://www.scotland.gov.uk/publications/2009/10/29110947
