Abstract
A quasi optimal pricing policy for the transport of commodities by competing road/ rail services requires the imposition of a single revenue constraint across the two modes, and leads to prices of the competitive services being set proportionally to marginal costs. For all commodities (captive commodities as well as those for which road and rail compete), the size of the markups should depend on transport elasticities which reflect underlying supply and demand elasticities but are independent of the impact of modal competition (and hence modal cross elasticities). The implications of this policy would be to significantly reduce Australian rail freight rates for captive (bulk) commodities and modestly increase rail and road rates for competitive freight traffic.
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