Jin Yang (Northwestern): Price Discrimination and Regulation over a Network: the Case of US Rail Freight Industry
Abstract: Price discrimination is prevalent in the deregulated rail freight industry. Besides differential pricing based on detailed shipment characteristics, railroads discriminate against small price-taking shippers in spot markets, favoring large shippers in contract negotiation markets. Growing concerns regarding captive small shippers have prompted regulatory attention. Using a structural model incorporating both types of markets, I evaluate different designs of uniform pricing implemented through the recently proposed price benchmark policy. I find that the simple all-inclusive design decreases shipment quantities from more elastic shippers and harms the overall efficiency of railroad operations under economies of scale. Due to cost interdependence across the railroad network, price reductions for inelastic shippers are also compromised. In contrast, more tailored uniform pricing within selective groups can both preserve the positive output expansion effect and mitigate the negative misallocation effect of price discrimination. In particular, regulation proves most effective when spot prices are benchmarked against contract prices, allowing small shippers to leverage the bargaining power of larger shippers. These results suggest the potential of more refined designs to improve welfare, even in cases where standard uniform pricing falls short.
Mariya Acherkan
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