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Deregulation And Efficiency In Grain Transport

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  • Brennan, Donna C.

Abstract

In this paper, it is argued that removing restrictions on road transport will not be sufficient to encourage efficiency improvements in grain freight industry while rail authorities continue to operate as public monopolies. This is because of the structure of costs in the grain freight industry, which imply that road transport cannot compete with rail transport in areas where road is the more efficient mode. While the tendency for a regulated monopoly to cross-subsidise inefficient operations is common place, the focus in this analysis is on the nature of the cross-subsidy in the grain freight industry, and shows that it is a type of cross-subsidy that is well hidden by aggregation. A model of investment in a rail network is presented where the monopoly power afforded to the rail industry is shown to be due to economies of traffic density. A case study of the grain rail network in Western Australia is presented where it is shown that the rail authority has been able to maintain very uneconomic sections of rail line, despite the introduction of road competition and apparently competitive pricing practices.

Suggested Citation

  • Brennan, Donna C., 1995. "Deregulation And Efficiency In Grain Transport," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 39(02), August.
  • Handle: RePEc:ags:ajaeau:22401
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    References listed on IDEAS

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    1. John Quiggin, 2012. "Introduction," Introductory Chapters,in: Zombie Economics: How Dead Ideas Still Walk among Us: With a new chapter by the author Princeton University Press.
    2. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    3. Brennan, Donna C. & Lindner, Robert K., 1991. "Investing In Grain Storage Facilities Under Fluctuating Production," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 35(02), August.
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    Cited by:

    1. Kingwell, Ross S., 2002. "Issues for Farm Management in the 21st Century: A view from the West," 2002 Conference (46th), February 13-15, 2002, Canberra 173982, Australian Agricultural and Resource Economics Society.

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    Keywords

    Public Economics;

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