RAIL RATES IN THE US HAVE BEEN AFFECTED MORE STRONGLY BY COMPETITION AND LESS BY COSTS SINCE PARTIAL DEREGULATION. THE STRENGTH OF COMPETITION FROM TRUCKS DEPENDS UPON FUEL PRICES AND IMPROVEMENTS IN TECHNOLOGY, AND THE AVAILABILITY OF RAIL CARS. THE AUTHORS ANALYSE THEORETICALLY AND EMPIRICALLY THE MARKET. MODAL DEMAND AND TRUCK SUPPLY FUNCTIONS ARE ESTIMATED FROM TIME SERIES DATA OF TRUCK AND RAIL RATES FOR WHEAT SHIPMENTS FROM NORTH DAKOTA TO THE MAIN TERMINAL MARKETS OF MINNEAPOLIS AND DULATH. A THEORETICAL MODEL OF RAILROAD PRICING DECISIONS IS DERIVED, DEMONSTRATING THE IMPORTANCE OF THE SUPPLY ELASTICITY FOR TRUCK SERVICE. ESTIMATED PRICE ELASTICITIES FOR RAIL SERVICES ARE ALL GREATER THAN ONE, AND THOSE FOR TRUCK DEMAND DEPEND TO A LARGE EXTENT ON THE AVAILABILITY OF RAIL CARS. OWN-PRICE AND CROSS-PRICE ELASTICITIES FOR BOTH MODES INCREASED IN THE DEREGULATION PERIOD. THE SLOPE OF THE COMPETITIVE FRINGE SUPPLY FUNCTION IS FOUND TO BE A KEY PARAMETER IN ANALYSING THE EFFECTIVENESS OF INTERMODAL COMPETITION.
Abstract