A Study of Elevator Competition and Waterway Demands with Geographically Varying Elasticities and Spatial Autocorrelation

In this study, I develop and estimate a model of spatial competition between grain elevators. Grain elevators compete over space for products, which they in turn supply to the market and form the demand for transportation. I model these supply and corresponding transportation demands as as a function of prices, transportation rates and a variety of control variables. These control variables capture the spatial environment from which decisions are made. Further, elevators operate in different geographic areas with differing market and demand alternatives which imply structural breaks across regions. A variety of models designed to capture geographic differences in the elasticity parameter are employed to uncover structural breaks in the data along the geography of the network. Further, these elevators compete with each other spatially, with the result that their errors may be spatially correlated. To examine this possibility, I estimate a spatial autocorrelation model for the potential spatial clustering of errors. The results suggest that demand elasticities vary across the spatial environment, and that the presence of competitors can and does have a sizable impact on the structure of demand. These results are of central importance to policy-makers as they call into question the assumptions made by models currently in use for measuring the benefits of inland waterway improvements, and yet, provide estimates that are easily adapted to the models used to measure these benefits. † This research was conducted under funding from the Army Corps of Engineers, Institute for Water Resources, Navigation Economics Technologies (NETS) program. I would like to gratefully acknowledge the and comments from Wesley Wilson, Glen Waddell, Bruce Blonigen, Mark Burton, Chris Dager and the staff at TVA. * Kevin E. Henrickson, Department of Economics, 1285 University of Oregon, Eugene, OR 97403-1285, (541) 346-4668, (541) 346-1243 (fax), [email protected]