Price Benchmark Regulation of Multiproduct Firms: An Application to the Rail Industry

Authors

Wesley W. WilsonFollow
Frank A. WolakFollow

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S155

Abstract

Building on Harold Demsetz’s argument that market forces can be more effective in disciplining the pricing behavior of firms relative to explicit output price regulation, this paper proposes and analyzes the performance of a price benchmark approach to identify unreasonable prices in multiproduct industries subject to residual reasonable price regulation. An empirical application to the freight rail sector demonstrates that this mechanism has the potential to provide economically meaningful relief to shippers at lower cost, with less administrative burden, and without significant adverse financial consequences for the railroads.

Recommended Citation

Wilson, Wesley W. and Wolak, Frank A. (2022) "Price Benchmark Regulation of Multiproduct Firms: An Application to the Rail Industry," Journal of Law and Economics: Vol. 65: No. 5, Article 6.
Available at: https://chicagounbound.uchicago.edu/jle/vol65/iss5/6