Description:

Jin Yang: "Price Discrimination and Regulation over a Network: the Case of US Rail Freight Market"

Abstract:
In settings with price discrimination, regulations may be targeted to specific market segments with stronger market power distortion. However, when markets are interdependent, local policies can lead to global consequences that might undermine the welfare and distributional objectives. In the US rail freight industry where substantial economies of scale exist across markets of different routes and commodities, I document a consistent premium paid by small shippers in the spot markets compared to the privately negotiated contract prices of the large shippers. Besides differences in bargaining ability, this volume discount likely reflects a large shipper's unique marginal contribution to the efficiency of a network and the profitability of a railroad in other connected markets. Therefore, currently debated policies seeking to relieve certain shippers might also diminish railroads' incentive to subsidize other marginal shippers, potentially compromising network efficiency. To empirically study the question, I develop a structural model incorporating both oligopoly competition in the posted price markets, and an endogenous bargaining network formation process between railroads and large individual shippers. The model allows me to quantify the linkage across markets, and simulate contract renegotiation and exclusion following policy changes. For the presentation, I will focus on presenting the full model, showing the demand side results, and discussing the ideas for supply side estimation and counterfactual.