Transportation in low density markets: a role for public policy?

Abstract

Many jurisdictions continue to regulate transportation services to small communities. These low density transport markets are subject to utilization economies that are lost when the market is fragmented among numerous competitors. This paper uses a simulation model that replicates the actual dispatching procedures used to distribute automobiles in western Canada. Using the actual demand for automobiles, the service levels and produc tivity of truck service in low density markets are estimated for various competitive scenarios and compared to the actual service and productivity levels achieved. Market performance results are modeled under monopoly and under competitive conditions and explicitly show the tradeoff between service and productivity (cost). Market fragmentation is seen to result in significant productivity losses with service held constant, or service de clines with productivity held constant. Competitors with the largest market shares have the greatest opportunities to produce the highest levels of service at the lowest cost. The results are consistent with empirical studies of other Canadian truck markets. Implications for public policy regarding transportation in low density markets are developed.