Market Power in Transportation: Spatial Equilibrium under Bertrand Competition

We examine spatial competition along a waterway when shippers are distributed over space. Competition is between barge and rail companies and among barge companies. Equilibrium prices are derived for two variations: oligopolistic rivalry between barge and rail operators, and oligopolistic rivalry among barge operators with terminals located at different points on the waterway. In the first variant, each mode has an advantage over some shippers and transporters’ overprice cost advantages (price differences are too small in equilibrium). The second variant delivers a “chain-linked” system of markets, whereby cost changes in one market are passed through equilibrium prices to other markets. Barge operators with cost advantages parlay these into market size advantages. ∗We would like to thank the Navigation Economic Technologies (NETS) program for support. NETS was an Institute for Water Resources research program in the Army Corps of Engineers to enhance its mission in assessing waterway investments. This research was one of the projects: others can be found on www.corpsnets.us. We thank two anonymous referees and Andre de Palma for their constructive and clarifying comments. †Department of Economics, University of Virginia. Anderson would like to acknowledge his debt to Richard Arnott for both supervising his PhD thesis, and for Richard’s continual insights and inspiration into spatial and urban economics. ‡Department of Economics, University of Oregon.