DEFINITION of 'Congestion Pricing'
A method used to reduce traffic by charging a fee to road users during rush hours. The user fee may vary by the time of day and day of the week, being highest during periods of peak demand and lower at less-popular hours. During low-demand times, there may be no fee at all. Economically speaking, congestion is considered a demand-side solution to traffic. An example of a supply-side solution would be increasing road capacity.
BREAKING DOWN 'Congestion Pricing'
Congestion pricing is not limited to transportation; it can be used with any service that faces varying levels of demand by time of day, such as electricity. Congestion pricing is supposed to encourage users who can be flexible in their usage times to shift their use away from peak periods to times when use is less expensive. One criticism of congestion pricing is that it acts like a regressive tax, harming low-income users more than other groups.