The higher price of cleaner fuels: Market power in the rail transport of fuel ethanol
AbstractThis paper provides evidence of market power in the transportation of ethanol used in reformulated gasoline and alternative transportation fuels. I estimate a reduced form model for railroad route-level prices. My identification strategy instruments for railroad entry, controls for selection and explicitly models capacity constraints. A detailed understanding of this industry is important because U.S. environmental policies seek to substantially expand ethanol use. Evidence of market power may alter the types of policies pursued by lawmakers. I find that ethanol shipment prices are lower for more competitive routes. I also find evidence that railroads price discriminate based on environmental regulation at route destinations. Monopolist prices for shipments to carbon monoxide non-attainment areas are 3% higher than shipments to other destinations. This price premium falls sharply with increased competition. This suggests a perverse result where environmental regulation increases the price of a clean input.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Environmental Economics and Management.
Volume (Year): 62 (2011)
Issue (Month): 2 (September)
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Web page: http://www.elsevier.com/locate/inca/622870
Price discrimination Biofuels Climate change;
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- Soren T. Anderson, 2010.
"The Demand for Ethanol as a Gasoline Substitute,"
NBER Working Papers
16371, National Bureau of Economic Research, Inc.
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