DP6185 Is the Regulation of the Transport Sector Always Detrimental to Consumers?

Author(s): Kristian Behrens , Carl Gaigné , Jacques-François Thisse

Publication Date: March 2007

Keyword(s): transport deregulation , transport sector , imperfect competition , economic geography , interregional trade

JEL(s): F12 , F16 , R12 , R49

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP6185.asp.asp

The aim of this paper is to qualify the claim that regulating a competitive transport sector is always detrimental to consumers. We show indeed that, although transport deregulation is beneficial to consumers as long as the location of economic activity is fixed, this is no longer true when, in the long run, firms and workers are freely mobile. The reason is that the static gains due to less monopoly power in the transport sector may well map into dynamic dead-weight losses because deregulation of the transport sector leads to more inefficient agglomeration. This latter change may, quite surprisingly, increase consumer prices in some regions, despite a more competitive transport sector. Transport deregulation is shown to map into aggregate consumer welfare losses and more inequality among consumers in the long run.