Description:

Speaker: Jin Yang

Title: Bargaining and Competition in the US Freight Rail Industry

Abstract: I study the US Freight Rail Industry, where both standard posted prices and privately negotiated contract prices are prevalently used. I document key facts about railroad competition under the two pricing mechanisms: contract prices are much more responsive to competition than posted prices, and the exact effects depend on specific local market structures. Drawing from these observations and the institutional background, I develop a two-stage bargaining and shipment demand model. Each shipper first simultaneously bargains with all available railroads, who use posted prices as their reserve prices and bid against each other in contract negotiation. In the second stage, the shipper exclusively trades with the winning railroad to fulfill all her shipment demand. Compared to the literature, my model highlights the role of buyer's preference heterogeneity and sellers' competitiveness in endogenously shaping the bargaining power.