A spatial equilibrium of a stylized railroad network is offered to illustrate that monopoly pricing requires prices on some links that are so high that traffic “does not move.” ICC price structure regulation, which was based on the idea that traffic should be priced to “move” in a privately owned and operated network, is modeled as maximizing market access subject to an AVC minimum and an aggregate break-even constraint in a network that is over-extended. Flows that result from such regulation are highly inefficient but provide more surplus to shippers and receivers than the unregulated price structure.
Review of Industrial Organization – Springer Journals
Published: Jul 16, 2013
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