Applications of transport economics and imperfect competition

Abstract

The great majority of analyses made in transport economics use, explicitly or, more often, implicitly, the common assumption of perfect competition. This is the case, for instance, when infrastructure projects are evaluated using the mere sum of the surpluses of transport users and providers. Even when putting aside the question of externalities such as noise, safety or environmental quality, the real chain of economic interactions that takes place in transport provision or downstream of transport provision is not taken into account. Surely enough, describing and simulating this chain could be quite complex. Nevertheless, it is not uninteresting to try to estimate if it does make a big difference or not to make this approximation. The paper makes such an attempt for two broad kinds of applications of transport economics: Transport pricingbuilding on a generic formulation of imperfect competition pricing behaviour that encompasses a broad range of competition situations, and taking the railway case as a benchmark, simulation results give an idea of the order of magnitude of optimal tariff variation when perfect competition is assumed as compared to “real” competition situation. These results are completed and somewhat mitigated by observations on the final welfare impact of this discrepancy. Project assessmentthe consequences of imperfect competition situations are analysed, first, for transport provision, discussing the diverse levels of representation of economic interactions that are used in usual project assessment. Second, we use both theoretical and heuristic formulations of the interactions that take place within simple chains of economic actors downstream of transport provision. Besides pure “short sighted” profit maximisation and the base case of perfect competition, the more general imperfect competition modelling mentioned above is completed with simple “surplus sharing” behaviours.As a whole, imperfect competition effects seem to be high within the transport sector and should be treated, both for project assessment and for infrastructure pricing. The case is less clear as regards imperfect competition downstream of transport but still deserves attention. The numerous simulations and the economic analyses performed lead us to give hints for improving some of the current practices of economic assessment concerning infrastructure pricing and project assessment.