Abstract
In bulk commodity rail freight markets (grain, coal, potash, etc.), specific origins and destinations are served by one, or perhaps two, carriers. Economic theory suggests that, when supply is limited, prices are not likely to be competitive. Applying this wisdom, railroads are likely to charge high prices, and hence shippers (producers) will move quantities less than the socially optimal quantities. This is the argument for the two standard economic solutions: Marginal Cost Pricing and Ramsey Pricing. We examine the efficiency of Marginal Cost Pricing and Ramsey Pricing relative to Deregulated Prices, those which obtain when carriers and shippers (producers) are free to contract without regulatory impediment. Our model suggests that:
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Marginal Cost Prices will not enhance economic efficiency relative to Deregulated Prices; and
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Ramsey Prices will degrade economic efficiency relative to Deregulated Prices.
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© 1996 Springer-Verlag Berlin. · Heidelberg
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Hurley, W.J., Petersen, E.R. (1996). Why Regulate Prices in Freight Transportation Markets?. In: Bianco, L., Toth, P. (eds) Advanced Methods in Transportation Analysis. Transportation Analysis. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-85256-5_17
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DOI: https://doi.org/10.1007/978-3-642-85256-5_17
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