Spatial Price Competition and the Demand for Freight Transportation

Abstract

This paper addresses two important issues of econometric freight transportation demand analysis: the simultaneity between quantity shipped and mode/destination choice, and the effect of spatial price competition on the demand. The use of switching regression techniques allows estimation of the model because shipment size and mode/destination choice are derived from the same optimization problem. In the theoretical model, spatial price competition determines the company's market area and therefore determines its sales and shipment sizes. The empirical model provides consistent estimates of unconditional freight demand. The estimates are necessary to forecast transportation flows and derive elasticities for policy analysis.