Transportation provision in a Cournot regional economy

Authors: John Miron*, University of Toronto
Topics: Economic Geography, Political Geography, Urban and Regional Planning
Keywords: transportation, regional economy, theory of the state
Session Type: Paper
Day: 4/6/2020
Start / End Time: 11:10 AM / 12:25 PM
Room: Plaza Court 5, Sheraton, Concourse Level
Presentation File: No File Uploaded

Cournot (1838) was first to analyze the consequences of the flow of a commodity between two geographic places on the price of that commodity locally given competitive markets. Samuelson (1952) re-labeled Cournot’s problem as “spatial price equilibrium”. Samuelson imagines a local downward-sloped inverse demand curve and a local upward-sloped inverse supply curve. Samuelson solves for spatial price equilibrium diagrammatically using a “price difference curve” . Later, Takayama & Judge (1971) solve the spatial price equilibrium problem on the assumption that arbitrageurs act so as to maximize global net social welfare: the sum of consumer benefits (area under each local demand curve) minus the sums of (1) producer costs (area under each local supply curve) plus (2) shipping costs incurred by arbitrageurs. In this paper, I incorporate the provision and pricing of a guideway by the state within a Cournot regional economy. I assume a background of ubiquitous but costly local roads and that the guideway, where a less-costly alternative, attracts arbitrageurs who then drive down the local price of a commodity where it is high, and drive up the local price where it is relatively low. First for a 2-place regional economy and then for a 3-place regional economy, I show how the state’s choice of position and pricing of the guideway differs once we take into account a Cournot regional economy

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