Benchmark Regulation of Multiproduct Firms: An Application to the Rail Industry / Wesley W. Wilson, Frank A. Wolak.

Format:

Book

Author/Creator:

Wilson, Wesley W.

Contributor:

National Bureau of Economic Research.

Wolak, Frank A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25268.

NBER working paper series no. w25268

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Benchmark Regulation of Multiproduct Firms

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

A number of formerly regulated multiproduct industries have a transitional or permanent residual regulatory mandate to protect consumers from "excessive" prices. The legislation that deregulated most rail rates contains a statutory mandate for the regulator to protect shippers from "excessive" prices. Fulfilling this mandate has been challenging because of the cost and administrative burden to shippers in obtaining regulatory relief. Moreover, as argued by Wilson and Wolak (2016), the existing rate relief mechanism is based on a cost concept that does not reflect the actual incremental cost of a shipment and it does not adequately address the question of what constitutes an "excessive" rate for a multiproduct firm with significant common costs. This paper analyzes a benchmark price approach to identifying "excessive" prices in multiproduct industries subject to residual price regulation. Our empirical analyses demonstrate how the mechanism can be used to fulfill the statutory mandate to protect shippers from "excessive" prices at substantially lower cost, with less administrative burden, and without significant adverse consequences for the long-term financial viability of the railroads.

Notes:

Print version record

November 2018.