Spatial Modeling in Transportation… discussant: Van Kolpin - University of Oregon Results can be reformulated to apply in an extremely general framework.

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Spatial Modeling in Transportation… discussant: Van Kolpin - University of Oregon Results can be reformulated to apply in an extremely general framework. Arbitrary numbers of strategic competitors, shipping routes, shipping methods, final destinations, etc. and sales price of produce can depend on all of the above. Conclusion: Equilibrium of resultant shipping model is efficient if output is exogenously given. (2nd price auction.)

Endogenously determined production? Assume nonlinear pricing is allowed (unit n need not be charged at same rate as unit n+1). Shippers/farmers may now compare the profits they would receive using different shipping services for different quantities. If pricing can be contracted prior to production, then efficient equilibrium result persists. If pricing is contracted after production, then equilibrium need not be efficient.

Example 5 units : profit=10 (excluding shipping fee), actual cost to either of two shipping companies is units : profit= 20 (excluding shipping fee), actual cost to shipping company A is 6 and to shipping company B is19. Preproduction contract: 10 units produced. Shipping fee is 14, leaving farmer with 6 units final profit (2nd best social welfare when 5 units produced.) Postproduction contract: 5 unit shipping fee is 6, 10 unit shipping fee is units are produced in equilibrium, an inefficient outcome.

Capacity constraints? While capacity constraints may impact the actual production and shipping decisions, they do not impact efficiency conclusions. Concrete structural assumptions serve to pin down numerical predictions on realized prices, rather than to ensure efficiency.