Spatial Modeling in Transportation II: Railroad Pricing, Alternative Markets, and Capacity Constraints∗

We describe competition over space between a competitive shipping industry (truck-barge) and one with market power (the railroad). The latter prices so as to "beat the competition" in equilibrium, or else at the monopoly price, if that is lower. The monopoly price rises more slowly than do the costs of transportation (freight absorption) if the spatial demand at each point is log-concave. With log-convex demand, price rises quicker than the costs of transportation. The model readily extends to allow for multiple destination points. Introducing capacity constraints for the railroad indicates that only the furthest locations will be served by the railroad since they yield the highest mark-ups per mile. keywords: Spatial equilibrium, market power, transportation networks, mode/destination choice, equilibrium mode price, capacity constraints. ∗We would like to thank the Navigation Economic Technologies (NETS) program for support. †Department of Economics, University of Virginia. ‡Department of Economics, University of Oregon, and Institute for Water Resources.