SPATIALLY-DIFFERENTIATED TRUCKING MARKETS: EQUILIBRIA UNDER PRICE REGULATION WITHOUT ENTRY RESTRICTIONS

Abstract

Trucks provide transport between a pair of cities, with the demand for transport from A to B being more intensive than for the reverse (back-haul) direction . The trucking industry comprises individual owner-drivers, and t here is no restriction on entry. For the two markets, the regulator sets the prices high enough to ensure that the number of trucks available does not fall short of the number of loads to be shipped. Shippers choose trucks at random. Each truck is based at either A or B, leaves its base if a load is obtained, and returns to base with or without a load. The analysis explores the ways in which extra costs are incurred as the regulated prices are raised above the necessary minimum levels. It is shown also that there can be an equilibrium with some trucks based at the back-haul city B, as an alternative to the intuitively more obvious equilibrium having all trucks based at A.