University of Illinois Urbana-Champaign

Market power and transportation price formation: Theory and an application to the captive shipper problem

Woock, Rodger Allan

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Description

Title
Market power and transportation price formation: Theory and an application to the captive shipper problem
Author(s)
Woock, Rodger Allan
Issue Date
1990
Doctoral Committee Chair(s)
Kolstad, Charles D.
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
  • Economics, General
  • Economics, Commerce-Business
  • Economics, Theory
  • Transportation
Language
eng
Abstract
  • We develop a spatial model of bulk commodity transportation price formation. The spatial transportation price model is first developed for the monopolist carrier. Then the model is extended to quantity-setting and price-setting duopolist carriers under incomplete cross-hauling. Measures developed from the market equilibrium conditions identify whether mill, uniform or discriminatory transportation pricing is the dominant type of price information. Other measures are derived which allow us to differentiate between price-setting and quantity-setting carrier behavior. A Lerner index of the carriers' ability to extract quasi-rents is derived. A modification of the Lerner index specific to transportation prices first proposed by Damus (1981) is also derived.
  • Empirical implications of the spatial model of transportation price formation are tested on the alleged captive shipper problem within the Powder River Basin coal transportation market. The results indicate that spatial discriminatory pricing is the prevailing type in the market. The results support the characterization of the carriers as quantity-setting Nash duopolists during the period analyzed. In general, the results support the hypothesis that railroads in the Powder River Basin coal transportation market exercised less market power as rate deregulation progressed from 1980 to 1986.
  • A statistical analysis of a limited set of coal supply and coal transportation contract data indicates that the transactions structure of the steam coal supply market was altered as a response to the deregulation of rail rate-making. We give evidence that the duration of steam coal supply and transportation contracts has been reduced in response to the threat of increased railroad extraction of quasi-rents associated with the production and distribution of coal-fired electric power.
Type of Resource
text
Permalink
http://hdl.handle.net/2142/19074
Copyright and License Information
Copyright 1990 Woock, Rodger Allan

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