The purpose of this paper is to model competition in freight transport and to work out the role of government in providing infrastructure for the competitors. Freight transport could in principle be provided by the firm itself by using firm-owned trucks, or transport services could be out-sourced by purchasing these services from rail and/or truck transport firms. Production is linked in the rest of the economy to transport demand, provided by two competing modes of transport. Given infrastructure, a fuel tax, and the stock of vehicles, the conditional demand functions are first derived of the economy for truck and rail services. The two transport firms know these demand functions and compete in prices. Then a transport policy is proposed that chooses two types of infrastructure, highways and the railway system, and a fuel tax in order to maximise welfare. The economic aspects for an optimal provision of the two types of infrastructure can be expressed by a set of unknown elasticities that measure the impact of infrastructure services on price and quantity variables in transport industries. With time-series data for the German economy these impacts are measured on prices in the rail and truck industries, on the volume of transport, on congestion, and on the utilisation of the stock of transport equipment. (A)
Abstract