Network pricing : service differentials, scale economies, and vertical exclusion in railroad markets.

We develop and estimate a model of railroad pricing over a network where railroads may, or may not, face upstream, or downstream, competition with barges. Service quality differences amongst modes and link economies may result in railroad pricing which can exclude barge movements in the connected markets. A sample of agricultural railroad movements is used to compare rates on traffic between markets where there is, and is not, a potential for such pricing behaviour. The results strongly support the hypothesis that vertical exclusion pricing exists and varies across commodities with effects ranging from 6 to 24 per cent. (Author/publisher).