Economy & Policy

A thoroughly modern monopoly

By Barbara Kiviat | April 25, 2008 | +

Thumbnail image for Thumbnail image for Thumbnail image for E-ZPass2.jpg

Hi, That Anonymous Dude. Great to see you in the Comments section again. I rented a Ford Focus, which does, in fact, have pretty decent gas mileage.

It also has an E-ZPass transponder on the front windshield. I haven’t seen that in a rental car before, but it makes perfect sense. Apparently, the car rental companies have been trying this out for a couple of years, but now it seems standard. Avis, where I rented, charges $1.50 a day on top of tolls to use the system.

That got me to thinking about the company behind E-ZPass. As anyone living in the Northeast knows, E-ZPass is ubiquitous–12 states, from Maine to Illinois to Virginia, use E-ZPass to let motorists electronically pay tolls for highways, bridges and tunnels. The company that sells the transponder technology is called Mark IV.

Mark IV has what we like to call sustainable competitive advantage. Good luck trying to break into this business. It’s true there are other companies that make electronic-toll technology–a firm called TransCore makes the devices used in Florida’s SunPass system, for example–but Mark IV really has the Northeast locked up.

Mark IV first got this gig back in 1994 when a consortium of 22 state and local highway agencies decided to use its technology. I guess it makes it a lot easier to convince people to go electronic if you can tell them their transponder will work over a quarter of the country. (If you are a transportation geek and want to know the inside story of how Mark IV won that contract, check out this story that ran in Toll Road News last month.)

My theory is that unless Mark IV really screws something up royally, they will never lose this contract. It took that consortium 18 months to test and agree on a common technology the first time around. The costs of switching at this point are so high that I think it’s safe to say Mark IV is in something of a transportation sweet spot. That’s especially true since there’s so much opportunity for growth: car rental companies, late adopters still paying with cash, a growing driving population.

Unfortunately, this is not a theory you can invest on. Mark IV went private back in 2000.

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  • That Anonymous Dude

    “Avis, where I rented, charges $1.50 a day on top of tolls to use the system.”

    What a ripoff (I think)! I am 98% certain I paid nothing to get my ezpass, and pay no ongoing fees other than my usage.

    They (Mark IV I presume) do get some free float since my card is pre-charged $25 at a time when I run out of credit (and some skim off the tolls I’m sure…).

    So possibly Avis needs to charge for cost of float they pony up to Mark IV, but one has to be fairly sure they negotiated a bulk rate that comes out to way less than $1.50 a day..

  • That Anonymous Dude

    haha even more of a ripoff seeing how the toll collectors are keen since renters are the biggest toll cheats (info from your links). You are paying to help them eliminate fraud!

  • ScottFargo

    I am a transportation geek and I am fascinated by “natural” monopolies. I thought mobile phones and utility privatization would kill them off, but toll roads and related services will probably always fall into that category. Still, I think Time Magazine needs to start reporting any time sandwiches are brought into a meeting before being truly on par with Toll Road News.

  • SpotWeld

    I suspect that Mark V may get cut out of the loop entirely. If OnStar-like technology is expanded a bit it could be in the not-to-distant future where the car has an in built RFID system (intially for auto-maker inventory management). The owner signs up for the EZpass service, the service calls the OnStar-company and the car’s RFID gets remotely programed with the necessary ID. The billing goes though the already existing OnStar service. I suspct this could also be tied into GPS units.

    My question is, how hard will Mark IV fight to block or control this segment of the market?

  • apenglishblogger08

    While visiting New England, I encountered this EZ-Pass system for the first time and it seemed to offer a great advantage to such highways with high levels of traffic. After reading this blog and the linked article, I am even more convinced that Mark IV will continue to keep its stronghold in the north. Thanks for the info!

  • LionMstr

    Barbara, I think you only got part of the story and am afraid you didn’t quite finish your homework before airing your comments in a public blog forum. It sure must have been a dull news day at Time, eh?

    The transponder is only the device. The manufacturer is not responsible for obtaining the contracts for how it is used through the network of states who use electronic toll collection, or the distribution of the tolls collected, or coordinating the marketing/customer service to the consumers who use it.

    The company called ACS (Affiliated Computer Services) coordinates the infrastructure. EZ pass is only the name for how it is used here in the north east, however ACS has contracts to manage the entire toll collection/transportation services for quite a few states (not just electronic aspects, but manual too). Sorta like end to end products.

    They also market similar devices to commercial trucking companies that not only collect tolls, but also allow trucks to bypass the manual freight weighing process.

    Different states have different names for their network of toll transponders, however I suspect for the sake of the consumer they share similar specs in their infrastructure and toll revenue collection processes. (I’d think of it more like providing consistency for the consumers expectations, and quality control. Similar to having a McDonalds burger in Paris would be on par with one you have locally).

    A conspiracy theory seems more like an overreaching imagination where someone has to be a villain. The Toll Roads article you used as your smoking gun smells to me more like a youTube snippet (hint, hint…)

    I suspect you’d better take things up with Avis as to their reasons for their own separate user fees before citing the maker of the device or the folks who coordinate the toll collections on behalf of their various interstate clients.

    By the way, I picked up my EZ pass transponder at the customer service counter in my local supermarket. So maybe next time you’re going on a trip you might want to get one for yourself. Nothing too complex about that.

  • Barbara Kiviat

    Oh, there are no dull news days.

    I actually didn’t take any information for my post from the Toll Road News article. My primary source was Congressional testimony from 1994. The Director of Administrative Services for the New York State Thruway Authoriry explained how the E-ZPass Intragency Group Policy Committee (that consortium of state and local agencies I mentioned) decided to select Mark IV instead of Amtech to provide its electronic toll collection tags and readers.

    No conspiracy theory here. Just admiration for a business that found a great market for itself. And for the record, I didn’t use the Avis E-ZPass. I didn’t like the idea of paying $1.50 for something that should be free any more than you guys apparently do. Great tip about the customer service counter at the supermarket.

  • http://dell788.wordpress.com jutt788

    There are many that exist in India. Petro China is one that I know of in China and of course there could be many others there as well.
    Fox Rent A Car

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