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Costs, density economies, and differential pricing in the U.S. railroad industry

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  • Bitzan, John D.
  • Karanki, Fecri

Abstract

This study estimates returns to density in the U.S. Railroad industry using a cost function with commodity-specific outputs and explores implications for differential pricing. We find that large density economies persist in the U.S. railroad industry, suggesting that marginal cost pricing would not come close to recovering railroad costs. Increased pricing freedom from deregulation has enabled railroads to retain relatively competitive shippers and has fostered substantial cost reductions and innovation. While there is room to improve rate relief processes for relatively captive shippers, policies that make broad changes limiting the extent of differential pricing allowed by railroads have the potential to reduce the ability of the industry to respond to market forces, limiting investment and innovation, and harming railroads and shippers.

Suggested Citation

  • Bitzan, John D. & Karanki, Fecri, 2022. "Costs, density economies, and differential pricing in the U.S. railroad industry," Transport Policy, Elsevier, vol. 119(C), pages 67-77.
    • Handle: RePEc:eee:trapol:v:119:y:2022:i:c:p:67-77
    DOI: 10.1016/j.tranpol.2022.02.012
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    References listed on IDEAS

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    More about this item

    Keywords

    Railroads; Costs; Scale economies; Pricing; Regulation; Density economies;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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