The paper examines the role of economic regulation, some theory surrounding rents, the likely consequences of regulation in the presence of various types of rents, and their effects in the markets for rail's major freight tasks. Railways are part of logistics chains and their ability to abuse their market power depends on the characteristics of those logistics chains. The paper examines the different types of rents Marshallian market power rents, Schumpeterian innovation rents and Ricardian resource rents and the effects each might have on firm behaviour. It examines major logistics chains served by rail in Australia, the extent of economically damaging rents in these logistics chains, the likely behaviour of railways in response to these rents, and the appropriateness of economic regulation of third-party access to rail infrastructure. Subject to important qualifications, the paper concludes there may be a strong case for third-party access in coal chains, a weak case in aluminium, iron ore and steel and a case for line-by-line assessments for intermodal freight and grain. (a) For the covering entry of this conference, please see ITRD abstract no. E214666.
Abstract