The higher price of cleaner fuels: Market power in the rail transport of fuel ethanol

This paper provides evidence of market power in the transportation of ethanol used in reformulated gasoline and alternative transportation fuels. I estimate a reduced form model for railroad route-level prices. My identification strategy instruments for railroad entry, controls for selection and exp...

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Bibliographic Details
Published in:Journal of environmental economics and management 2011-09, Vol.62 (2), p.123-139
Main Author: Hughes, Jonathan E.
Format: Article
Language:English
Subjects:
Biofuels
Climate change
Competitiveness
Energy prices
Environmental policy
Environmental regulations
Ethanol
Ethyl alcohol
Fuels
Market power
Markets
Monopolies
Policies
Price discrimination
Price discrimination Biofuels Climate change
Prices
Pricing policies
Railroad engineering
Railroad transportation
Railroads
Railway transport
Shipments
Studies
Transport market
U.S.A
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Summary:This paper provides evidence of market power in the transportation of ethanol used in reformulated gasoline and alternative transportation fuels. I estimate a reduced form model for railroad route-level prices. My identification strategy instruments for railroad entry, controls for selection and explicitly models capacity constraints. A detailed understanding of this industry is important because U.S. environmental policies seek to substantially expand ethanol use. Evidence of market power may alter the types of policies pursued by lawmakers. I find that ethanol shipment prices are lower for more competitive routes. I also find evidence that railroads price discriminate based on environmental regulation at route destinations. Monopolist prices for shipments to carbon monoxide non-attainment areas are 3% higher than shipments to other destinations. This price premium falls sharply with increased competition. This suggests a perverse result where environmental regulation increases the price of a clean input.
ISSN:0095-0696
1096-0449
DOI:10.1016/j.jeem.2011.01.001