Events

Mr. Jin Yang

This paper studies price discrimination in rail freight transportation, where shippers facing different prices are also interdependent due to economies of scale across the railroad network. Consequently, even discriminated shippers can benefit from the increased demand among discounted shippers, as it improves scale and decreases costs for all. To assess the full effects of price discrimination under these externalities and contribute to the policy design debate, I develop and estimate a structural model of rail freight markets. Results show that a simple banonall third-degree price discrimination reduces freight volumes and scale economies, by limiting railroads’ ability to target discounts at their most price elastic shippers. In contrast, more tailored policies that permit certain discrimination can preserve quantity while mitigating misallocation. Based on these, I design a recently discussed price benchmark policy that implements reference pricing between small price-taking and large contract-negotiating shippers sharing selective characteristics. This approach both addresses distributional issues and increases total welfare by $500 million per year. My findings suggest that refined regulations distinguishing the sources of different price discrimination may better serve markets with externalities