TY - JOUR
T1 - The Static-Dynamic Eflciency Trade-off in the US Rail Freight Industry
T2 - Assessment of an Open Access Policy
AU - Coublucq, Daniel
AU - Ivaldi, Marc
AU - McCullough, Gerard
N1 - Publisher Copyright:
© 2019 Walter de Gruyter GmbH, Berlin/Boston 2019.
PY - 2018
Y1 - 2018
N2 - 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.
AB - 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.
KW - competition
KW - dynamic structural models
KW - investment
KW - open-access
KW - railroad industry
KW - static-dynamic efficiency trade-off
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U2 - 10.1515/rne-2018-0009
DO - 10.1515/rne-2018-0009
M3 - Article
AN - SCOPUS:85073191561
SN - 2194-5993
VL - 17
SP - 267
EP - 301
JO - Review of Network Economics
JF - Review of Network Economics
IS - 4
ER -