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Competition in Transportation Modes and the Provision of Infrastructure Services

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  • Conrad, Klaus

Abstract

The purpose of this paper is to model competition in freight transport and to work out the role of the government in providing infrastructure for the competitors. Freight transport could in principle be provided by the firm itself by using firm-owned trucks or transportation services could be outsourced by purchasing these services from rail and/or truck transport firms. We link production in the rest of the economy to transport demand, provided by two competing modes of transport. Since congestion is an increasing cost component in densely populated countries, we develop an index of congestion which can be controlled by investing in highway infrastructure. Given infrastructure, a fuel tax and the stock of vehicles, we first derive the conditional demand functions of the economy for truck and rail services. The two transport firms know these demand functions and compete in prices. We then propose a transportation policy which chooses two types of infrastructure, highways and the railway system, and a fuel tax in order to maximize welfare. The economic aspects for an optimal provision of the two types of infrastructure can be expressed by a set of unknown elasticities which measure the impact of infrastructure services on price and quantity variables in transport industries. With time series data for the German economy we measure these impacts on prices in the rail and truck industries, on the volume of transport, on congestion, and on the utilization of the stock of transportation equipment.

Suggested Citation

  • Conrad, Klaus, 1999. "Competition in Transportation Modes and the Provision of Infrastructure Services," Discussion Papers 564, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
    • Handle: RePEc:mnh:vpaper:1046
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    References listed on IDEAS

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    1. Friedlaender, Ann F. & Mathur, Subodh C., 1982. "Price distortions, financing constraints and second-best investment rules in the transportation industries," Journal of Public Economics, Elsevier, vol. 18(2), pages 195-215, July.
    2. Klaus Conrad, 1997. "Traffic, transportation, infrastructure and externalities A theoretical framework for a CGE analysis," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 31(4), pages 369-389.
    3. Weinreich, Sigurd & Rennings, Klaus & Schlomann, Barbara & Geßner, Christian & Engel, Thomas, 1998. "External Costs of Road, Rail and Air Transport - a Bottom-Up Approach," ZEW Discussion Papers 98-06, ZEW - Leibniz Centre for European Economic Research.
    4. Braeutigam, Ronald R, 1979. "Optimal Pricing with Intermodal Competition," American Economic Review, American Economic Association, vol. 69(1), pages 38-49, March.
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    More about this item

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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