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Spatial Modeling in Transportation… discussant: Van Kolpin - University of Oregon

Spatial Modeling in Transportation… discussant: Van Kolpin - University of Oregon. Results can be reformulated to apply in an extremely general framework.

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Spatial Modeling in Transportation… discussant: Van Kolpin - University of Oregon

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  1. Spatial Modeling in Transportation…discussant: Van Kolpin - University of Oregon • Results can be reformulated to apply in an extremely general framework. • Arbitrary numbers of strategic competitors, shipping routes, shipping methods, final destinations, etc. and sales price of produce can depend on all of the above. • Conclusion: Equilibrium of resultant shipping model is efficient if output is exogenously given. (2nd price auction.)

  2. Endogenously determined production? • Assume nonlinear pricing is allowed (unit n need not be charged at same rate as unit n+1). • Shippers/farmers may now compare the profits they would receive using different shipping services for different quantities. • If pricing can be contracted prior to production, then efficient equilibrium result persists. • If pricing is contracted after production, then equilibrium need not be efficient.

  3. Example • 5 units : profit=10 (excluding shipping fee), actual cost to either of two shipping companies is 4. • 10 units : profit= 20 (excluding shipping fee), actual cost to shipping company A is 6 and to shipping company B is19. • Preproduction contract: 10 units produced. Shipping fee is 14, leaving farmer with 6 units final profit (2nd best social welfare when 5 units produced.) • Postproduction contract: 5 unit shipping fee is 6, 10 unit shipping fee is 19. 5 units are produced in equilibrium, an inefficient outcome.

  4. Capacity constraints? • While capacity constraints may impact the actual production and shipping decisions, they do not impact efficiency conclusions. • Concrete structural assumptions serve to pin down numerical predictions on realized prices, rather than to ensure efficiency.

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