The Static-Dynamic Efficiency Trade-off in the US Rail Freight Industry: Assessment of an Open Access Policy

Coublucq, Daniel, Ivaldi, Marc and Mccullough, Gerard J. (2018) The Static-Dynamic Efficiency Trade-off in the US Rail Freight Industry: Assessment of an Open Access Policy. TSE Working Paper, n. 18-916, Toulouse

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Official URL: http://tse-fr.eu/pub/32621

Abstract

Considering the US railroad industry, which is characterized by seven integrated firms that provide freight services on tracks they own and maintain, this paper provides a structural model that allows to evaluate the potential effects of opening the rail network to new firms on prices and investment incentives. In particular, we propose a framework for analyzing the tension between static efficiency (pricing behavior) and dynamic efficiency (investment behavior). The investment behavior is rendered endogenous by means of a dynamic model where the current investment depends on the expected future profits. We then use a forward simulation procedure to analyze the effect of an open-access market structure where a new firm uses the network of one of the biggest railroad firm. Under a simple access charge equaled to the marginal cost of access, investment in network infrastructure decreases by 10% per year, leading to a significant decrease in network quality over time. Under this setting, despite the increase of price competition, the decrease in network quality leads to a fall in consumer welfare. Other types of (more evolved) access charges might even allow to relax the tension between static efficiency and dynamic efficiency, allowing more price competition while preserving investment incentives. This topic deserves further research and is beyond the scope of this paper.

Item Type: Monograph (Working Paper)
Language: English
Date: April 2018
Place of Publication: Toulouse
Uncontrolled Keywords: competition, dynamic structural models, investment, open-access, railroad industry, static-dynamic efficiency trade-off
JEL codes: L10 - General
L51 - Economics of Regulation
L92 - Railroads and Other Surface Transportation - Autos, Buses, Trucks, and Water Carriers; Ports
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 24 Apr 2018 07:43
Last Modified: 24 Apr 2018 07:43
OAI ID: oai:tse-fr.eu:32621
URI: http://publications.ut-capitole.fr/id/eprint/25954

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