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The higher price of cleaner fuels: Market power in the rail transport of fuel ethanol

  • Hughes, Jonathan E.

This 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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Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 62 (2011)
Issue (Month): 2 (September)
Pages: 123-139

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Handle: RePEc:eee:jeeman:v:62:y:2011:i:2:p:123-139
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