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

John D. Bitzan and Fecri Karanki

Transport Policy, 2022, vol. 119, issue C, 67-77

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.

Keywords: Railroads; Costs; Scale economies; Pricing; Regulation; Density economies (search for similar items in EconPapers)
JEL-codes: D24 L11 L51 L92 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:trapol:v:119:y:2022:i:c:p:67-77

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DOI: 10.1016/j.tranpol.2022.02.012

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